Netflix is winning the streaming media wars by burning whopping amounts of cash.
To pay for blockbuster original hits like "Bird Box," "House of Cards," and "Ozark," Netflix (NFLX) burned through $3 billion in 2018. Negative free cash flow accelerated to $1.3 billion in the fourth quarter, more than double the year before.
It's not a one-time phenomenon. Netflix said on Thursday it expects to go through another $3 billion in 2019 to fund more content and aggressive marketing aimed at signing up even more subscribers, especially overseas.
Wall Street doesn't seem to mind. Netflix keeps rapidly adding customers and revenue continues to grow steadily. By spending lots of money and borrowing aggressively, Netflix has built a position that will make it harder for new and existing rivals to catch up.
But Netflix can't burn that kind of cash forever, though, especially if market turbulence limits the ability of debt-laden companies to tap the junk bond market.
"It's not sustainable," Neil Begley, Moody's senior vice president, according to CNN.
"Strategically, Netflix is doing all the right things. But they've layered over that a level of financial risk that would make a lot of people uncomfortable," Begley added.
Investors seem unfazed. Netflix shares dropped 3 percent on Thursday, but they remain up 26 percent in 2019 through the first 13 days of trade.
Concerns about the balance sheet have been drowned out by rapid subscriber growth and Netflix's ability to raise prices. The company announced a US price hike this week that demonstrated confidence in its business model.
It added a record 8.8 million paid subscribers during the fourth quarter, beating its own estimates. In total Netflix now has 139 million paying memberships, up from 110 million at the start of 2018. And the streaming company estimates it earns around 10 percent of television screen time in the United States.
Netflix signaled optimism on the cash burn front. While negative free cash flow will be "similar" this year to 2018, Netflix expects it to "improve each year thereafter" from improving margins. Future investment will be funded more "internally," Netflix said.
Image credit: CNN