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When Will Netflix Stop Burning Cash?

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Feb. 8 2017, Published 3:30 p.m. ET

Here’s where Netflix looks like Amazon—again

Netflix (NFLX) and Amazon.com (AMZN) have been vying to dominate the world of subscription video, and they’re both producing original programming and launching in new markets to reach their goals. But there’s another way the companies are similar: they’re both burning money.

Netflix said at its 4Q16 earnings call that its cash burn will deepen this year, as compared to the previous one. The company sees itself finishing 2017 with a free cash flow deficit of $2 billion, worse than its $1.7 billion free cash flow deficit in 2016.

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Netflix says the cash burning is justified, citing that it added more subscribers than it had forecast internally and also surpassed Wall Street predictions. The company gained nearly 7.1 million customers in 4Q16—higher than the 5.2 million it was targeting. Netflix finished 2016 with 93.8 million subscribers, as compared to 74.8 million at the end of the prior year.

Amazon spending heavily as well

As for Amazon, the company is spending heavily to create original shows for its Prime video service to increase the appeal of its Prime program because it is crucial for the success of its e-commerce business. Amazon is also investing heavily in its cloud computing business to fend off competition from Microsoft (MSFT), Alphabet (GOOGL), Oracle (ORCL), and other rivals.

Netflix is also pumping billions of dollars in the production of original content, which it says is critical for its subscriber growth and retention, and it’s more economical, in the long-run, than licensing movies from Hollywood producers like Sony (SNE), Walt Disney (DIS), and Time Warner (TWX).

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