When Netflix stepped into the spotlight, no one thought it would be possible to watch a million and more movies streamed right from the internet and today, the global streaming giant boasts an impressive 104 million subscribers worldwide, up 25% from last year and almost quadruple from five years ago. Its series and movies are said to account for more than a third of all prime-time download Internet traffic in North America. More than 50 original Netflix shows are also said to have garnered 91 Emmy Award nominations this year, second only to premium cable service HBO.
But there’s another set of numbers that could spell trouble for the company’s growth. Netflix has reportedly accumulated a hefty $20.54 billion in long- and short-term debt in its effort to produce more original content. The Los Gatos, California based company hopes more new shows will capture more subscribers, its primary revenue driver. It’s also under pressure to keep spending on new shows as streaming rivals such as Amazon and Hulu expand their own slates of original programming.
The result is that Netflix keeps spending at a growing clip. The company is said to be pouring money into expensive prestige projects and expects to spend at least $6 billion in content this year. Its net cash outflow this year is forecast to grow to as much as $2.5 billion, up from $1.7 billion last year. Reflecting its growth, Netflix is said to have recently moved its Southern California headquarters into a 14-story building in Hollywood.
So far, investors have reportedly expressed approval of Netflix’s spendthrift ways. They are betting that debt financing in the near term will create growth and yield big results down the road on the theory that you have to spend money to make money.
Netflix shares surged more than 10% this month after it reported better-than-expected subscriber growth. For the year, it is said that the stock is up nearly 50% but some industry experts are warning Netflix of foreseen trouble if the company fails to produce enough hit series to keep attracting new subscribers.
Still, Netflix is not expected to dial down on spending anytime soon. The company’s strategy is reported to invest more on self-produced original series such as the ’80s-themed “Stranger Things” and the kid-centric “A Series of Unfortunate Events.”
The goal, executives say, is to increase the portion of self-produced originals to 50% of its slate in an effort to own more of the shows on its platform.
Let’s hope Netflix doesn’t get hooked in the throat because we do love streaming those movies online.
