Netflix shares jump the most in four years — investors are feeling (cash flow) positive
Tiger King's Gambit... Netflix stock soared 17% yesterday, its biggest one-day gain in four years — oh, and it also hit an all-time high. Netflix's latest quarterly earnings made investors hot and streamy. Some numbers:
- 200M+: Netflix's paid subscriber count, double from 2017.
- 100M households have watched The Crown to date, and 62M watched The Queen's Gambit in its first 28 days (Netflix thrives on shows with royal titles).
Rolling with the (cash) flow... Netflix's quarterly sales growth has been slowing — and its quarterly profit actually fell compared to a year earlier. But analysts got all giddy over one thing: cash flow. The Flix said it expects to become sustainably cash flow positive after 2021.
- Cash flow positive = having more money coming in than going out over a given time period. If you made $3K from your job this month, but spent $2K, you're cash flow positive (#ey).
- Netflix has been paying for its operations (like the outfits in Bridgerton) by borrowing and raising money. Now it has enough cash on hand — $8.2B — that it doesn't need to raise more.
- BTW: Netflix is profitable, but it's possible for a company to be cash flow positive and not profitable. Big loans can inflate cash flows but don't directly boost profit.
It's all about sharing the wealth... with shareholders. Companies that are cash flow positive are generally more likely to return cash to investors, either through dividends or through stock buybacks. As it approaches “being sustainably cash flow positive," Netflix said it'll explore more stock buybacks — which boost the price of shares by reducing their availability. But investors are also patient: it took Netflix 23 years to get to this point.