INTRODUCTION: NFLX may be one of the most contentious names in our space. The debate centers on whether NFLX’s business model is sustainable; specifically whether it will be able to grow its subs into its content expenditures/obligations. We expect that debate to favor the bears next year given heightened pressure on net sub adds. We will run through our supporting analysis, and the 2017 catalyst calendar on our call tomorrow at 1pm EST. Key points and call details below.
KEY POINTS
- CONTENT OBLIGATIONS = HAMSTER WHEEL: NFLX’s content expenditures are a much bigger hurdle than its income statement/contractual obligations would suggest. NFLX’s content profiles more as recurring expense than it does asset, and its obligations are an understated view of the ongoing cost of running that model.
- RUNWAY GETTING SHORTER (SUBSCRIBERS): We expect that the bull/bear debate is coming to a head in 2017 with net sub adds in both segments facing mounting pressure with the emergence of two big headwinds in each market. Consensus is positioned for improving trends through 2017.
- 2017 = NOT ENOUGH CAPITAL? It's possible that NFLX could conceivably counteract its 2017 sub-add headwinds by considerably ramping up its marketing spend, but we doubt it will have the budget to do so given our expectation for surging SAC and that the bulk of that budget is committed/earmarked for content outlays.
Participating Dialing Instructions
- Toll Free:
- Toll:
- UK: 0
- Confirmation Number: 13650478