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Introduction

Netflix’s content spend looks out of control, its cash burn is enormous, and its profitability is declining; all are getting worse, not better, with its massive subscriber growth and greater global scale. We also find that Netflix is adopting very aggressive content accounting in order to manage its deteriorating profitability.

Highlights

  • In 2011 Netflix generated net profits of $0.81 per customer per month ($226m in total), while the equivalent free cash flow figure was $0.67 ($186m in total). Over the first nine months of 2016, monthly net profit per customer has declined to $0.16 per customer, but free cash flow per customer has declined to a negative $1.33 – amounting to a cash burn of more than $1bn for the first nine months of 2016 alone. The deteriorating cash burn per customer is the greatest concern, and it looks set to get worse. Furthermore, Netflix’s (barely) positive profit margin looks to rest mostly on some very aggressive accounting.

Features and Benefits

  • Evaluates the economics of Netflix’s business model on a per-subscriber basis
  • Assesses Netflix content accounting and finds some very aggressive expensing assumptions.

Key questions answered

  • Is Netflix's current business model, which rests on aggressive content spend and aggressive expensing of the same, sustainable?
  • What are Netflix’s routes for sustainable cash generation and will they come at the expense of subscriber growth?

Table of contents

Summary

  • In brief
  • Ovum view

Appendix

  • Further reading
  • Author

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