uploads///NFLX FCF Q

Netflix Expects Its Negative Free Cash Flow to Increase This Year

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Apr. 17 2019, Published 1:02 p.m. ET

Netflix saw cash flow of -$460 million in the first quarter

Netflix (NFLX) has been burning cash to create original content and acquire content. This push may be intensifying as it prepares to compete with the likes of Apple and Disney.

Netflix said that its FCF (free cash flow) fell in the first quarter of 2019 to -$460 million from -$287 million in the same quarter last year. The video streaming giant’s FCF was as low as -$3.01 billion in 2018 compared to -$2.0 billion in 2017.

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Netflix warned in its letter to shareholders in the fourth quarter of 2018 that its 2019 FCF could be similar to last year’s. However, the company expects its FCF to start improving in 2020.

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Why negative FCF isn’t necessarily a bad thing

Netflix said in its recent letter to shareholders that its FCF this year is likely to be worse than expected at ~-$3.5 billion. However, the company still expects its FCF position to improve from next year onward driven by its growing subscriber base, revenue, and operating margins.

Netflix has been spending over $8 billion annually on content over the last couple of years. Even though this has had an adverse effect on its cash flow in the short term, the strategy is necessary to provide it with enough quality content to retain subscribers and compete with its ever-increasing number of competitors.

The company’s long-term debt now stands at $10.3 billion, and it also owes billions of dollars in off-balance-sheet debt. This debt has been worrying investors, especially with interest rates rising.

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