Can Netflix Survive?

Netflix's debt is rising at an exponential rate. And not once since inception has it made a profit. This cannot last.

The above chart is from the Seeking Alpha article Netflix Problem In One Simple Chart.

I condensed the chart so that it better fit on a page and I also added a bézier curve.

The full chart shows Netflix has lost money every quarter since 2012.

I seldom link to Seeking Alpha because they make you register to read articles in one page, otherwise, they make you scroll through stuff one page at a time. In this case, five pages.

This kind of user unfriendliness does not promote link sharing. Some people do not like subscribing out of fear there email address will be sold and they will be bombarded with crap.

I am an actual subscriber, yet the site cannot even bother to remember that. It asked me to login or subscribe to keep reading.

I stopped reading on page 2. It does not take five pages to understand that chart.

Netflix is very dependent on the bond market. If the bond market revolts before it can turn a profit, the company will cash in bankruptcy.

Mike "Mish" Shedlock

Comments (27)
No. 1-27
ArtyMcPeak
ArtyMcPeak

Mike, Tip: if you use Firefox and click on "reader view" it sucks in the whole article and presents it in a clean single-page format. Don't know why it works but it does for all the times I tried it, ymmv.

ML1
ML1

Netflix has made many people billionaires. Can they defy gravity for 1-2 years more? In the long run current Netflix value is really 10-20 times too high. . The problem is market has rewarded what Netflix has done so the current Netflix strategy has been rational until now and will be rational as long as market continues to overvalue the company and give them more debt financing cheaply. In order for Netflix to survive long term they would have to start cutting their debt levels and lessen the amount that they spend on content but if they would do that someone else would eat their lunch because debt financing is so cheap so Netflix will keep going until financing dries up. When financing dries up they will double their prices and lose 20%-30% of their subscribers quickly but still end up with profits with which they can manage their debt levels.

Carl_R
Carl_R

Your language is a tad bit ambiguous. You say "The full chart shows Netflix has lost money every quarter since 2012." The chart actually appears to show that they have reported both an operating profit and positive net income in every quarter, which is what most people think of when they think "made money". Cash flow is actually more important, and after reading the chart, I deduced that that what you were referring to. Your language would have been less ambiguous had you said they "bled cash in every quarter", or similar.

2banana
2banana

That chart looks like a classic ponzi. Kinda like the rest of the "dot com bubble v2" companies.

MntGoat
MntGoat

Speaking of tech narratives.....I wonder if Uber can continue to survive off a model that rests upon the backs of part time low income immigrant drivers that run their cars into the ground to NET $8 an hour. Now Uber/Lyft and are buying bike and scooter companies for the uber sharing model that is more capital intensive (they own the bikes and scooters and have to manage them). And Airbnb with more regulation from local municipalities like Japan now.

Greggg
Greggg

They keep promoting LGBT and parents are dumping them. It's pretty simple if you have the marketing data... where is their break even point?

MntGoat
MntGoat

People who drive for Uber likely make below the poverty income line and therefore likely get a huge subsidy for near free Obamacare (since Uber doesn’t pay their health care as far as I know). Independent contractors and self employed people who make ABOVE the poverty line take the FULL HIT of the Obamacare monthly premiums (which are massive). My guess is many Uber drivers also have some sort of govt housing subsidy like Section 8, and possibly food stamps. So the American taxpayer gets the bill for Ubers business model of low income independent contractors. While Uber execs get to skim the profits and become billionaires.

That would be a great statistic to come up with, what % of Uber drivers get a ObamaCare subsidy, section 8 and food stamps.

gliderdude
gliderdude

Serious money have been saved by consumer cable cutters and ex-HBO subscribers. Netflix price so cheap that I have never bothered to cancel it inspite of my fairly low usage. The elephant in the room is the end game price elasticity of their service. They are still focused on expansion largely overseas. Another price hike is being touted as well. But for the Q to Q crowd it is near bankruptcy any time now. That belief has been very painful.

nodhannum
nodhannum

All I can think of Mish is this wonderful short YouTube diddy that aired on "Silicon Valley"...Radio On Internet: https://youtu.be/BzAdXyPYKQo Fits Netflix well.

Frogdog
Frogdog

killben
killben

"If the bond market revolts"

That is a big IF! After all the bond market is not believing the Fed's verbal drivel of raising rates.

gliderdude
gliderdude

Getting "the bond market" to "revolt" against Netflix at this late stage will be much more difficult for shorts than has been with Tesla. The near 6% they are paying on newer 10 years bond seems attractive enough.

Tony_CA
Tony_CA

Netflix is another example of the latest fed-driven bubble. It's valuation is beyond ridiculous. It's but another sign of late-stage Capitalism.

Stuki
Stuki

Like essentially all US companies these days, Netflix' customers are not it's subscribers. Those guys are just part of the marketing plan.

Instead, the customers are those buying shares. IOW, select bicoastal, less-than-critical 1-5%ers. Who are, on account of aggressive and fairly well targeted Fed and government redistribution schemes, preselected for adherence to the entire regime-underpinning progressive canon. From empirical "economics," to the FIRE complex comprising of "industries" rather than rackets, to mindless LGBT and other "social" childishness.

Those not belonging to the above group, have already been sufficiently stripped of buying power by the Fed and Government, to have exactly zero relevance as a customer to anyone.

So, LGBT programming you get. Not because you want to watch it, but because the FIRE racket hacks who received the money stolen from you, have been told you ought to do so.

Stuki
Stuki

It's not really up to any "market" anymore. As there are no realistic markets left. Instead, whether quintillion dollar valuations of petrocks.com is sustainable, is by now pretty much entirely up to the Fed.

As long as The Fed insist on preventing the system from collapsing, those comprising the system will take as much money as they can, and lend it at a 25bp markup to anyone big enough to be fashionable amongst New York and DC dittoheads.

And, since the purchasing power represented by free money doesn't just grow on trees, it has to be taken from someone. Those someone being the ones who could otherwise be meaningfully paying customers for content producing companies like Netflix.

So, you'll end up where the only viable business plans, are ones that are aimed at selling hype to "investors", rather than products to customers. Since the former have been handed all the purchasing power the latter have produced, by Fed redistribution.

ReadyKilowatt
ReadyKilowatt

Reed Hastings and Netflix is doing what John Malone and TCI did in the 1980s: Build subscribers, then leverage subscriber revenue to buy content. Step 3 will be to merge with someone bigger and dumber, but keep the content creation side.

Malone built subscribers through acquisition of mom-and-pop cable companies. Netflix is doing it by making sure every platform has their app loaded front and center (my 4K TV default input is Netflix even though I'm not a subscriber). Malone levered TCI stock to buy/create Liberty Media. Hastings' Netflix is just going direct to producers, but that's much easier to do today. Malone sold TCI off to AT&T and kept the good stuff in Liberty Media. Hastings will probably be able to sell off the distribution and name to someone like Verizon (Yahoo), who will talk about how they can "leverage" their network for distribution. Meanwhile the content will stay with Hastings, possibly under a spun-out tracking stock.

Snow_Dog
Snow_Dog

Yep, exactly that, and the valuations will soar to the skies with nobody actually sure of just what the heck they are buying. Think : Yahoo at $500 a share plunking down $6B for broadcast.com because Mark Cuban convinced Jerry Yang that everybody wanted to hear radio broadcasts of their favorite college basketball teams, ...and somehow wanted to do so over the internet! Isn’t tech great?

Not you worry, because thevEfficient Market hypothesis says that everything there is to know about a stock has been factored into the stock price. Joe Sixpack? He is what’s known as a “passive investor” and he buys the indices that make up the collective body of stocks. Therefore, he is getting the benefit of all that knowledge that each company’s stock price reflects. What could possibly go wrong with that?

Sechel
Sechel

I have the same issue with links to the wsj

kpmyers
kpmyers

Netflix may be taking the path that Amazon started down in the '90s, land grab/market share and forego the profits until later.

Pater_Tenebrarum
Pater_Tenebrarum

NFLX strikes me as far more vulnerable to competition though - competition that is actually in a position to harm the content side of its business (think Disney). Amazon Prime is already competing directly with NFLX and I see no practical difference between their offerings.

pgp
pgp

The new normal in the funny money world is to raise money by issuing bonds to pay for those due now and with the left overs, buy back shares then fund operating costs and expansion that is completely out of synch with the real state of the economy. The Chinese have been doing it for decades, its the new global corporate model. Inevitably the bonds will default. The major share holders and BOD will walk away with millions of other people's money as the company gets stripped, broken up or rebranded. No one cares because before that happens the bond price rises on sentiment because our culture is all about living and investing for the moment, to hell with sustainability or honesty.

nic9075
nic9075

No one is forced to work at such places.. And I am sure many of the workers have at least 1 child. Don't expand family on a near minimum wage job

Deter_Naturalist
Deter_Naturalist

Bonds (IOU's) are possibly even more an intangible than are common stocks. Humans have no cognitive pathways capable of grasping (and rationally evaluating) such intangibles. This is why long-term arithmetic charts of such things make no sense at all...yet no matter how high go prices/market caps/total debt, no limit exists.

Until it someday does. All of this is mass psychology, nothing more. It is social behavior of humans, no less defined by DNA than is eye color. Everyone appears to "believe" the Narrative (the music plays) until spontaneously they don't (the music stops.) After 37 years of credit inflation to the orbit of Mars, there won't be many chairs left when everyone tries to sit down. We just don't know when that will be.