When your financial report reveals 56% profit growth and subscriber numbers 36% ahead of forecasts, you’re doing something right. Credit Netflix Inc. (NASDAQ:NFLXB) CEO Reed Hastings with doing something right.
Some are saying it’s all about Hasting’s particularly keen vision regarding growth opportunities along with the skill required to seize those opportunities at just the right moment.
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Staying Ahead Of The Curve
In the beginning Netflix targeted people who regularly drove to the video store to pick up DVDs. He created a business plan that offered those people more variety, convenience and no late fees.
Then a paradigm shift occurred and Netflix built its own streaming service quickly followed by production of original content – remember House of Cards?
Next came geographic expansion. In January 2015 Netflix said it wanted to launching 150 new countries by 2017. It ended 2015 in 200 countries. It’s all about staying a head of the curve.
Original Content Is King
Currently, in addition to geographic growth, Netflix is plowing as much capital as it can tolerate into more original content. The company says it expects to increase its original content budget to $6 billion in 2017.
As impressive as that investment sounds, Hastings knows it will not be enough. And it is not the company’s long-term goal. As Hastings himself said in a recent conference call, “You never want to characterize something as an ultimate vision, because when you get there, there is always more you want to do.”
Burning Cash Is Worrisome To Some
Although Netflix and Hastings have shown they know what they are doing, Wall Street is never not worried. Despite crushing Q4 earnings, the street is getting heartburn over the amount of cash the company is burning.
Negative free cash flow for 2017 could be as high as $2 million. It was $1.7 million in 2016. The money isn’t being literally burned. It’s being used to create all that new content Netflix knows it needs to feed those millions of new and continuing subscribers always anxious to stream that next new thing.
No Slow Down
The worry warts will have to get used to the way things are, according to Macquarie's Tim Nollen, who said the projected 2017 deficit "may not be the worst of it." Said Nollen, "Netflix intends to expand to over 1,000 hours of original content this year and most likely more again next."
In October the company said it was raising another $800 million in debt bringing its total long-term debt to more than $3 billion.
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This Changes Everything
All this staggering growth is leading to a sea change in television. At least that’s what Netflix thinks. In a letter to shareholders the company said, "In short, it’s becoming an internet TV world, which presents both challenges and opportunities for Netflix as we strive to earn screen time."
To this Netflix added a prediction that before long rival Time Warner Inc. (NYSE:TWXC) owned HBO would make its shows available for binge watchers. It all fits nicely with the words of Netflix's head of content, Ted Sarandos, who said Netflix's goal was to "become HBO faster than HBO can become us."