4 ms·

in fairness, when netflix spends money on developing new content, they are building up a library. viewers in the future viewing that content will be very high

in fairness, when netflix spends money on developing new content, they are building up a library. viewers in the future viewing that content will be very high margin. Thats sort of a huge advantage for one of the long time content producers. say DIS spends 10 bil on original content and netflix matches, DIS has decades of previous content already built up.

adventured 8y ago
I understand, however they can never stop that cycle of building the library. Content ages, plenty of it isn't very good or won't appeal to a wide audience, and people might watch it once if you're lucky. After that watch, you then have to feed them the next thing and the next thing, forever. Disney generates $14.8 billion in operating income and has a real, sustainable profit. Netflix is actually losing vast, ever larger amounts of money, despite being at around 150 million paid subscribers. Which is a pretty blatant admission that they can never generate a profit with the current approach. And that's before the competition heats up a lot further with Apple and Disney, both of which have far deeper pockets. Amazon ($40b in cash) also now has far deeper pockets, thanks to their AWS & ad profit machines. Perhaps the most interesting figure for Netflix is the quarterly interest cost. $132m in debt interest cost for all of 2015. $128m in interest cost just for 4Q18 alone. Soon their interest costs might match the size of their 'profits' at the rate they're going on debt accumulation (and assuming likely slower growth with their scale). They're looking at eventual debt downgrades and higher interest costs if they can't stop the worsening negative cash flow. The debt markets will get more skeptical. Long-term debt was $3.3 billion at the end of 2016. A mere two fiscal years later it was up to $10.3 billion. For a company their size that's an enormous jump. Given they've largely saturated the richer markets and the only thing they have left are fee hikes to try to improve margins, I fail to see how they can turn the corner given their financial metrics keep getting worse as they get larger. What new markets could they add that would spur some great positive cash flow turn? I suspect they're nearing the limits of price increases in the US, to make matters worse. They've placed a bet on some magic corner-turning event based on scale, meanwhile two ferocious competitors with unlimited capital have just entered the race.
- autokad 8y ago
  thats why I double downed on my DIS and do not own NFLX; though I wouldn't call someone a fool for owning NFLX. I actually think both have room to grow, just that DIS @ 110$ seemed like a catch
  - adventured 8y ago
    I agree with the Disney premise, it had gotten comically cheap. I think Netflix is worth less than half what it is presently trading for. I'll note I have no position in NFLX (long or short). Most of the valuation is story-based. I'm skeptical the story entirely survives the hard reality of Netflix being drastically outgunned by their three largest competitors. Netflix essentially contends Disney and Apple entering the space full bore won't slow them down, it's an absurd notion to pump to shareholders. If Disney is smart, they'll finish eating Hulu and use it as further value leverage in the Disney+ push. Apple now views such service offerings as critical to their future, so they're likely in it to seriously compete. CBS is worth $19b, with $2.9b in operating income for 2018, compared to $1.6b for Netflix (at a $156b market cap). I like to hold that up as an example of what the medium is often really worth (obviously not meant to be a direct apples to apples comparison between the two). This is especially true once you move beyond some investor fantasies that streaming with monthly subscribers is somehow special. The ever larger capital blackhole of Netflix is a nice demonstration of the hard economic realities in expensive video content production.

adventured 8y ago

I understand, however they can never stop that cycle of building the library. Content ages, plenty of it isn't very good or won't appeal to a wide audience, and people might watch it once if you're lucky. After that watch, you then have to feed them the next thing and the next thing, forever. Disney generates $14.8 billion in operating income and has a real, sustainable profit. Netflix is actually losing vast, ever larger amounts of money, despite being at around 150 million paid subscribers. Which is a pretty blatant admission that they can never generate a profit with the current approach. And that's before the competition heats up a lot further with Apple and Disney, both of which have far deeper pockets. Amazon ($40b in cash) also now has far deeper pockets, thanks to their AWS & ad profit machines. Perhaps the most interesting figure for Netflix is the quarterly interest cost. $132m in debt interest cost for all of 2015. $128m in interest cost just for 4Q18 alone. Soon their interest costs might match the size of their 'profits' at the rate they're going on debt accumulation (and assuming likely slower growth with their scale). They're looking at eventual debt downgrades and higher interest costs if they can't stop the worsening negative cash flow. The debt markets will get more skeptical. Long-term debt was $3.3 billion at the end of 2016. A mere two fiscal years later it was up to $10.3 billion. For a company their size that's an enormous jump. Given they've largely saturated the richer markets and the only thing they have left are fee hikes to try to improve margins, I fail to see how they can turn the corner given their financial metrics keep getting worse as they get larger. What new markets could they add that would spur some great positive cash flow turn? I suspect they're nearing the limits of price increases in the US, to make matters worse. They've placed a bet on some magic corner-turning event based on scale, meanwhile two ferocious competitors with unlimited capital have just entered the race.

autokad 8y ago
thats why I double downed on my DIS and do not own NFLX; though I wouldn't call someone a fool for owning NFLX. I actually think both have room to grow, just that DIS @ 110$ seemed like a catch
- adventured 8y ago
  I agree with the Disney premise, it had gotten comically cheap. I think Netflix is worth less than half what it is presently trading for. I'll note I have no position in NFLX (long or short). Most of the valuation is story-based. I'm skeptical the story entirely survives the hard reality of Netflix being drastically outgunned by their three largest competitors. Netflix essentially contends Disney and Apple entering the space full bore won't slow them down, it's an absurd notion to pump to shareholders. If Disney is smart, they'll finish eating Hulu and use it as further value leverage in the Disney+ push. Apple now views such service offerings as critical to their future, so they're likely in it to seriously compete. CBS is worth $19b, with $2.9b in operating income for 2018, compared to $1.6b for Netflix (at a $156b market cap). I like to hold that up as an example of what the medium is often really worth (obviously not meant to be a direct apples to apples comparison between the two). This is especially true once you move beyond some investor fantasies that streaming with monthly subscribers is somehow special. The ever larger capital blackhole of Netflix is a nice demonstration of the hard economic realities in expensive video content production.