dinsdag 18 juli 2017

Netflix Surges After Smashing Subscriber Expectations, Cash Burn Soars; $15BN In Streaming Obligations

Netflix stock has surged after hours, soaring above its all time high price, and up nearly 10% after reporting Q2 numbers which while beating slightly on revenues ($2.79Bn, Exp. $2.77Bn), and missing on EPS ($0.15, exp. $0.16), were far more remarkable for the subscriber numbers, which smashed expectations as follows:
*Q2 total net streaming additions 5.2 million, Exp. 3.27 million
*Q2 domestic net streaming additions 1.07 million, exp. 633K
*Q2 international net streaming additions 4.14 million, exp. 2.63 million
The addition of 5.2 million subs in Q2 was the largest increase ever during the period, which has traditionally been the company's slowest time of year. That said, Netflix was quick to moderate the exuberance that these number would create and warned that "there was lumpiness in net adds, likely due to demand being pulled forward." Netflix' outlook was also well above expecations and the company now expects Q3 net streaming adds of 4.4 over 400K more than the consensus estimate of 3.99 million. The company expects $2.97 billion in Q3 revenue, also above the consensus estimate of $2.88 billion, and net income of $143 million, above the est. $101.6 million. The company now has 104 million subscribers worldwide, but the success has come at a steep price and as of March 31, NFLX's total content obligations were $15.3 billion, a number which has likely increased by about a billion dollars in the latest quarter...

Less impressive were the financials: here operating margin tumbled from 9.7% in Q1 to 4.6% in Q2 as a result of a $245 million sequential increase in cost of revenues. Furthermore, the company is back to its record cash burning ways, reporting that in Q2 it burned a record for the quarter $608 million, just why of its worst cash burn quarter in history when it burned $639 million in Q4 of 2016...

# On cash burn: Q2’17 free cash amounted to -$608 million vs. -$254 million in the year ago quarter and -$423 million in Q1’17. We anticipate free cash flow of -$2.0 to -$2.5 billion for the full year 2017. With our content strategy paying off in strong member, revenue and profit growth, we think it’s wise to continue to invest. In continued success, we will deploy increased capital in content, particularly in owned originals, and, as we have said before, we expect to be FCF negative for many years. Since our FCF is driven by our content investment, particularly in self-produced originals, we wanted to provide some additional context on our content accounting at our investor relations website. We continue to debt finance our capital needs as we believe this reduces our weighted average cost of capital, resulting in a more efficient capital structure. In May, we completed a 1.3 billion euro bond offering. In addition to a small natural hedge to our growing European revenues, we are pleased to have broadened our access to capital markets beyond the US high yield market. Our euro bond may add some volatility to our net income as each quarter we remeasure the liability on our balance sheet based on the quarter end euro-to-dollar exchange rate. As a reminder, quarter-to-quarter remeasurement changes in this liability are reflected as a non-cash unrealized gain (loss) below operating income in “interest and other income/expense” in our P&L (-$64 million impact on net income in Q2’17).
# The afterhours response shows that investors are far less worried about the relentless, near record cash burn, and instead are are more impressed with the subscriber additions, as a result sending the stock nearly 9% higher....