Personal Finance

5 Key Points From Netflix, Inc.'s Q4 Earnings Interview

Consumer Goods Streaming Media Netflix Nflx Content

Last Wednesday, Netflix (NASDAQ: NFLX) crushed investors' expectations by reporting a huge increase in its subscriber count in the fourth quarter. The company added more than 7 million streaming subscribers during the quarter. Netflix also comfortably beat its earnings guidance.

Following the earnings report, Netflix held its usual earnings interview between management and two Wall Street analysts. During the interview, Netflix executives highlighted these five key points.

Internet TV is taking off

So we are seeing some lumpiness in the quarters, depending on when we launch certain content, but the big picture is remarkably steady ... so think of it, really, as this big adoption of internet TV.-- Netflix CEO Reed Hastings

Not surprisingly, the analysts quickly asked Netflix's management to explain why subscriber growth accelerated so dramatically last quarter. However, CEO Reed Hastings explained that he takes a longer-term view.

Consumer Goods Streaming Media Netflix Nflx Content

Netflix needs to localize its content and interface in many of its new markets. Image source: The Motley Fool.

In September, Netflix started the process of localization in Poland and Turkey. This is already starting to pay off in the form of faster growth. Going forward, localization will be a growth driver in many other countries. That said, Netflix still has a small presence in these new markets relative to its more mature markets, so the impact may not be noticeable right away.

The shift to owned original content will continue

... [W]hile it is a bit more cash consumptive, owning our own content and including our original productions has a lot of big scale advantages to the business. Probably the most meaningful one is removing the studio markup and overhead on those productions...-- Netflix Chief Content Officer Ted Sarandos

One area where Netflix is still struggling is free cash flow production. During 2016, it burned nearly $1.7 billion of cash, up from less than $1 billion a year earlier. In 2017, that figure could rise to $2 billion, despite the company's improving profitability. Netflix will need to issue more debt this year to plug its cash flow deficit.

Up until about a year ago, Netflix's negative free cash flow was driven primarily by the timing of payments for new original series that the company was licensing from content producers.

Today, Netflix is increasingly producing original shows in-house. This requires even more upfront investment, weighing on free cash flow. However, Netflix executives see a big potential payoff from this strategic shift. Owning original content outright will reduce Netflix's costs in the long run while increasing its control over how that content is distributed.

Find out why Netflixis one of the 10 best stocks to buy now

Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)

Tom and David just revealed their ten top stock picks for investors to buy right now. Netflix is on the list -- but there are nine others you may be overlooking.

Click here to get access to the full list!

*Stock Advisor returns as of January 4, 2017

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More