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They’re not struggling to keep the lights on. They’re making a calculated bet they can extract more profit this way.

crazygringo 3y ago
Their stock went from $690 in Oct 2021 to $175 in June 2022. That's a 75% plummet, which is definitely approaching the equivalent of struggling-to-keep-the-lights-on for a modern corporation. That's three quarters of the way to bankruptcy, big red flashing danger lights. So of course this is a calculated bet to improve profitability. Virtually everything a for-profit corporation does is to improve profitability -- that's the whole point of being a business in the first place. What else would you expect?
- syrrim 3y ago
  Or they were supremely overvalued as of oct '21, as were many other stocks and securities, and the decline represents a return to sanity.
  - crazygringo 3y ago
    No. It was specifically due to not meeting expected subscriber numbers, prompting a widespread negative reevaluation of Netflix's entire business model. The decrease was way beyond anything affecting the stock market or tech stocks generally. A simple glance at the numbers, and the dramatic plummets directly after earnings reports, makes that clear.
    - deleted 3y ago
      [deleted]
    - remus 3y ago
      > It was specifically due to not meeting expected subscriber numbers, prompting a widespread negative reevaluation of Netflix's entire business model. I'd speculate that those expected subscriber numbers may have been inflated by the covid pandemic.
      - lxgr 3y ago
        “Under the assumption that the growth of 1 billion subscribers per month will continue linearly, we expect that in just two years…”
      - crazygringo 3y ago
        Well, their stock price fell to levels not seen since ~Aug 2017, and obviously COVID-19 didn't happen until, well, 2019. So while Covid might have been part of it, it's nowhere near the full story.
    - AyH3PY4SdGPzZ8w 3y ago
      > The decrease was way beyond anything affecting the stock market or tech stocks generally Counterpoint: Gamestop. Counterpoint: Bitcoin. Counterpoint: AMC. Counterpoint: literally any of its other fellow meme stonks
    - kelnos 3y ago
      > It was specifically due to not meeting expected subscriber numbers Sure, but "not meeting expected subscriber numbers" doesn't mean "the company is soon going to be unable to keep the lights on" or even "the company has an unsustainable business model and will fail". It just means market analysts believed Netflix would grow at a particular rate, but they grew at a lower rate. Wall Street is pretty fickle about growth numbers. Also note that the stock price has partially recovered, to $355. A year of fairly steady stock price increase doesn't suggest to me that there's anything particularly wrong with the company. Up higher, you said that a 75% price drop is "three quarters of the way to bankruptcy", which is... just not how the stock market works. The stock price is just a reflection of how the public market values ownership in the company. Hell, the stock price of a company going through bankruptcy proceedings might not even drop all the way to zero, depending on the details of the bankruptcy (e.g., if the company's assets exceed liabilities, there'd still be money left over for shareholders even in a liquidation). And regardless, bankruptcy doesn't even mean the company is going to be shut down; plenty of companies come out of chapter 11 and remain going concerns.
- thfuran 3y ago
  >That's three quarters of the way to bankruptcy, big red flashing danger lights. Is it though? Were they funding operations by selling shares?
  - lxgr 3y ago
    If their employees are paid in stock, yes.
    - xxpor 3y ago
      Netflix famously does all cash comp.
    - hef19898 3y ago
      Share based comp is accounted under a different line item then OPEX. And if the share price falls, more shres are used. If share prices rise bove projections, share based comp can become an issue due to the guaranteed number of shares outstanding all of a sudden becoming really expensive...
- m00x 3y ago
  ?? They're profitable and they made 4.5B in net income in 2022. 2023Q1 they made 1.3B net income. Your analysis makes no sense. Please learn more about finances before commenting on financial matters.
  - crazygringo 3y ago
    Please don't be insulting by telling other people what to learn. And if you look at the quarter before -- 2022Q4 -- they made just $55 million net income, which on revenue of 7.85B is below 1% profit. The overall point is that Netflix is in an extremely volatile and risky industry where it's not in a position to leisurely "extract" more profit because it's a bad guy or something, but rather it's very much been forced into doing things like cracking down on password sharing and introducing an ad-supporter tier simply to stay healthy as a business. Fortunately both of those things seem to be going well, but they easily might not have. If a company's market cap drops 75% in a short period of time, it's making big changes out of necessity, not as a comfortable choice.
    - Narkov 3y ago
      It's hard to go broke making a profit.
      - smugma 3y ago
        “‘How did you go bankrupt?’ Two ways. Gradually, then suddenly.” — Ernest Hemingway, The Sun Also Rises
    - m00x 3y ago
      I'm not trying to be insulting, I'm trying to help you and other readers. You're clearly ignorant of company finances, and commenting like you know what you're talking about is doing no one any favours. You picked the one quarter they did poorly, before this they made a consistent 1B+ net profit. This is extremely good financials, and not volatile at all. They also have 50B in assets at the moment, including almost 8B in cash.
    - lotsofpulp 3y ago
- fnordpiglet 3y ago
  Companies share price matters to shareholders and implies an ability to raise additional capital. It doesn’t have anything to do with solvency unless they borrowed money to buy back shares (which some companies did do when interest rates were low and share prices were depressed). Employees on stock incentive plans probably are eating the burden more than anyone.
  - crazygringo 3y ago
    > It doesn’t have anything to do with solvency Of course it does. If a stock goes to $0, the company is essentially insolvent. Sure there are details of timing -- insolvency isn't exactly the same as bankruptcy isn't exactly the same as a stock price of $0 -- but in practice they all tend to go together and the company as a going concern owned by present investors is effed.
    - fnordpiglet 3y ago
      I’m sorry, you’re just wrong. While share price generally correlated to the market investors view of future value there’s no direct relationship between equity valuation and corporate performance in any way whatsoever, other than the ability to raise additional capital. Once the equity has been sold in the primary issuance it’s only relationship to the corporation is an ownership claim and a weak claim on assets.
      - crazygringo 3y ago
        I literally said they're not exactly the same. But in practice, if the share price is $0, it's because the company is generally unable to pay its bills for long and bankruptcy is imminent. If the market thinks a company has zero value, the company is unlikely to survive for long, unless some miracle proves the market wrong. Splitting hairs over these technicalities is important for lawyers and analysts and management and in bankruptcy court, but not terribly important in the larger view. In the larger view, market cap via share price is a very practical reflection of the overall health/viability of a publicly traded company.
- dghlsakjg 3y ago
  Ok. Now do Oct 2019 and now. $270 to $330 See how picking arbitrary dates different from yours makes it look like a completely different story?
- kibwen 3y ago
  This sort of misunderstanding is what we should expect when we teach people that the stock market is equal to the economy, rather than teaching people that it's just a casino for the ultra-wealthy.
- AyH3PY4SdGPzZ8w 3y ago
  Not only is stock price not a cause of bankruptcy (as others have said)... but you're comparing meme stock, overcharged markets frenzy with everyone's wallet plump from the stimulus, with the beginning of a recession. (Side note, recaptcha is getting genuinely awful. 3 different challenges, 1 of which had 3 steps, and 20 seconds to get past it?! Have they given up detecting bots and decided to just make them wait?!)
- xeromal 3y ago
  Isn't share price like a credit score? It's indicative of what you're doing but the score itself doesn't make you poor.

Their stock went from $690 in Oct 2021 to $175 in June 2022. That's a 75% plummet, which is definitely approaching the equivalent of struggling-to-keep-the-lights-on for a modern corporation. That's three quarters of the way to bankruptcy, big red flashing danger lights. So of course this is a calculated bet to improve profitability. Virtually everything a for-profit corporation does is to improve profitability -- that's the whole point of being a business in the first place. What else would you expect?

syrrim 3y ago
Or they were supremely overvalued as of oct '21, as were many other stocks and securities, and the decline represents a return to sanity.
- crazygringo 3y ago
  No. It was specifically due to not meeting expected subscriber numbers, prompting a widespread negative reevaluation of Netflix's entire business model. The decrease was way beyond anything affecting the stock market or tech stocks generally. A simple glance at the numbers, and the dramatic plummets directly after earnings reports, makes that clear.
  - deleted 3y ago
    [deleted]
  - remus 3y ago
    > It was specifically due to not meeting expected subscriber numbers, prompting a widespread negative reevaluation of Netflix's entire business model. I'd speculate that those expected subscriber numbers may have been inflated by the covid pandemic.
    - lxgr 3y ago
      “Under the assumption that the growth of 1 billion subscribers per month will continue linearly, we expect that in just two years…”
    - crazygringo 3y ago
      Well, their stock price fell to levels not seen since ~Aug 2017, and obviously COVID-19 didn't happen until, well, 2019. So while Covid might have been part of it, it's nowhere near the full story.
  - AyH3PY4SdGPzZ8w 3y ago
    > The decrease was way beyond anything affecting the stock market or tech stocks generally Counterpoint: Gamestop. Counterpoint: Bitcoin. Counterpoint: AMC. Counterpoint: literally any of its other fellow meme stonks
  - kelnos 3y ago
    > It was specifically due to not meeting expected subscriber numbers Sure, but "not meeting expected subscriber numbers" doesn't mean "the company is soon going to be unable to keep the lights on" or even "the company has an unsustainable business model and will fail". It just means market analysts believed Netflix would grow at a particular rate, but they grew at a lower rate. Wall Street is pretty fickle about growth numbers. Also note that the stock price has partially recovered, to $355. A year of fairly steady stock price increase doesn't suggest to me that there's anything particularly wrong with the company. Up higher, you said that a 75% price drop is "three quarters of the way to bankruptcy", which is... just not how the stock market works. The stock price is just a reflection of how the public market values ownership in the company. Hell, the stock price of a company going through bankruptcy proceedings might not even drop all the way to zero, depending on the details of the bankruptcy (e.g., if the company's assets exceed liabilities, there'd still be money left over for shareholders even in a liquidation). And regardless, bankruptcy doesn't even mean the company is going to be shut down; plenty of companies come out of chapter 11 and remain going concerns.
thfuran 3y ago
>That's three quarters of the way to bankruptcy, big red flashing danger lights. Is it though? Were they funding operations by selling shares?
- lxgr 3y ago
  If their employees are paid in stock, yes.
  - xxpor 3y ago
    Netflix famously does all cash comp.
  - hef19898 3y ago
    Share based comp is accounted under a different line item then OPEX. And if the share price falls, more shres are used. If share prices rise bove projections, share based comp can become an issue due to the guaranteed number of shares outstanding all of a sudden becoming really expensive...
m00x 3y ago
?? They're profitable and they made 4.5B in net income in 2022. 2023Q1 they made 1.3B net income. Your analysis makes no sense. Please learn more about finances before commenting on financial matters.
- crazygringo 3y ago
  Please don't be insulting by telling other people what to learn. And if you look at the quarter before -- 2022Q4 -- they made just $55 million net income, which on revenue of 7.85B is below 1% profit. The overall point is that Netflix is in an extremely volatile and risky industry where it's not in a position to leisurely "extract" more profit because it's a bad guy or something, but rather it's very much been forced into doing things like cracking down on password sharing and introducing an ad-supporter tier simply to stay healthy as a business. Fortunately both of those things seem to be going well, but they easily might not have. If a company's market cap drops 75% in a short period of time, it's making big changes out of necessity, not as a comfortable choice.
  - Narkov 3y ago
    It's hard to go broke making a profit.
    - smugma 3y ago
      “‘How did you go bankrupt?’ Two ways. Gradually, then suddenly.” — Ernest Hemingway, The Sun Also Rises
  - m00x 3y ago
    I'm not trying to be insulting, I'm trying to help you and other readers. You're clearly ignorant of company finances, and commenting like you know what you're talking about is doing no one any favours. You picked the one quarter they did poorly, before this they made a consistent 1B+ net profit. This is extremely good financials, and not volatile at all. They also have 50B in assets at the moment, including almost 8B in cash.
  - lotsofpulp 3y ago
fnordpiglet 3y ago
Companies share price matters to shareholders and implies an ability to raise additional capital. It doesn’t have anything to do with solvency unless they borrowed money to buy back shares (which some companies did do when interest rates were low and share prices were depressed). Employees on stock incentive plans probably are eating the burden more than anyone.
- crazygringo 3y ago
  > It doesn’t have anything to do with solvency Of course it does. If a stock goes to $0, the company is essentially insolvent. Sure there are details of timing -- insolvency isn't exactly the same as bankruptcy isn't exactly the same as a stock price of $0 -- but in practice they all tend to go together and the company as a going concern owned by present investors is effed.
  - fnordpiglet 3y ago
    I’m sorry, you’re just wrong. While share price generally correlated to the market investors view of future value there’s no direct relationship between equity valuation and corporate performance in any way whatsoever, other than the ability to raise additional capital. Once the equity has been sold in the primary issuance it’s only relationship to the corporation is an ownership claim and a weak claim on assets.
    - crazygringo 3y ago
      I literally said they're not exactly the same. But in practice, if the share price is $0, it's because the company is generally unable to pay its bills for long and bankruptcy is imminent. If the market thinks a company has zero value, the company is unlikely to survive for long, unless some miracle proves the market wrong. Splitting hairs over these technicalities is important for lawyers and analysts and management and in bankruptcy court, but not terribly important in the larger view. In the larger view, market cap via share price is a very practical reflection of the overall health/viability of a publicly traded company.
dghlsakjg 3y ago
Ok. Now do Oct 2019 and now. $270 to $330 See how picking arbitrary dates different from yours makes it look like a completely different story?
kibwen 3y ago
This sort of misunderstanding is what we should expect when we teach people that the stock market is equal to the economy, rather than teaching people that it's just a casino for the ultra-wealthy.
AyH3PY4SdGPzZ8w 3y ago
Not only is stock price not a cause of bankruptcy (as others have said)... but you're comparing meme stock, overcharged markets frenzy with everyone's wallet plump from the stimulus, with the beginning of a recession. (Side note, recaptcha is getting genuinely awful. 3 different challenges, 1 of which had 3 steps, and 20 seconds to get past it?! Have they given up detecting bots and decided to just make them wait?!)
xeromal 3y ago
Isn't share price like a credit score? It's indicative of what you're doing but the score itself doesn't make you poor.