That being said, investors need to have a sense of perspective when it comes to Netflix’s cash flow. Netflix hopes to outspend its rivals on original and exclusive content. The cold hard fact is, multiple of its competitors could outspend the company in a minute if they chose to.
Just for point of comparison, Amazon.com, Inc. (NASDAQ:AMZN) spent $3.7 billion on capital expenditures in the last four quarters. Coinstar, Inc. (NASDAQ:CSTR) and Verizon Communications Inc. (NYSE:VZ) combined spent over $16 billion on capital expenditures in the last year. By comparison, Netflix, Inc. (NASDAQ:NFLX) generated just over $3.6 billion in revenue in this same timeframe. The point is, Netflix can’t hope to match the spending power of its rivals, so the company’s investments need to pay off.
This brings us to the fifth and final issue, the company said they would issue $500 million in new notes, what would they do with the funds? The company expected to spend $225 million to retire older 8.5% notes, which is a smart move. Netflix said they issued this debt because it, “afford(s) us the flexibility to invest in additional Originals.”
What’s Next? The all important question is, what’s next for Netflix? The company is obviously focused on creating original content and becoming more of a content creator rather than just a content distributor. While this sounds good, the company’s strategy could backfire. In two prior shows, House of Cards and Hemlock Grove, Netflix decided to release all 13 episodes all at once. This is great for customers who don’t want to wait for the episodes, but it also defeats the purpose of Netflix creating original content.
Netflix needs to understand that traditional content creators like HBO, NBC, ABC, and others have a reason to create content and not release it all at once. Viewers have to keep watching to see new episodes. If CBS released an entire season of NCIS: Los Angeles all at once, would viewers continue to tune into CBS once they were done watching? Unless CBS constantly generated new hit shows, it’s likely that viewers would look elsewhere.
The bottom line is, Netflix has the ability to be very valuable, if they realize their original content must be released slowly. If they take advantage of their original content in this way, the stock price may be justified. If they keep releasing whole seasons at once, the value of these investments declines dramatically. Not taking advantage of original content could also cause something else to decline dramatically…the stock price.
The article This Company Did 5 Things Right, But Is It Enough? originally appeared on Fool.com.
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