Netflix used to burn money. Now the profits are floating.

• Netflix makes money. Lot of money.
• Now that’s not news. But a few years ago, when the company was wasting billions every year, that wasn’t a given.
• Good luck, aspiring Netflix competitors!

Netflix has made a lot of money in the last three months.

Yawning. What else is new? Netflix is ​​the clear winner of the streaming wars and gets another chance to prove it every quarter. Like on Thursday, when another 5 million subscribers were added.

But read the first sentence again. Not only that, Netflix is ​​far ahead of its competitors when it comes to subscribers and revenue. Netflix actually makes so much money that it becomes a success benefitwhile its competitors struggle to break even.

A much Profit: $2.3 billion in net income, less $9.8 billion in sales. The company expects a profit of $8.7 billion by the end of the year.

Don’t expect anyone to hold a parade to recognize Netflix’s achievement. Wall Street expects such performance from Netflix, which is why the stock is near all-time highs.

But it’s still worth mentioning, because not long ago a lot of very sensible people thought that Netflix might never get this far.

That’s because Netflix used to waste money in its business – billions of dollars a year – as it gained a lead in the streaming wars by licensing other people’s TV shows and films and producing its own films. And Netflix financed the entire cash burn by taking on billions of dollars in debt.

By the end of 2020, the company had more than $15 billion in long-term debt, and one concern you constantly heard from the Netflix bears was: “It’s great that they’re spending so much money on content, but “When are you going to do this?” am I going to pay for it?”

Netflix’s response went something like this: “Trust us: All the money we spend on content – especially content we own forever – is money well spent because it means we can attract more customers who give us more money. And ultimately we’ll have so many customers and so much money that we won’t have to take out any more loans to keep the whole thing going.”

And then they did it: In January 2021, Netflix announced that it would no longer need to rely on the debt market to fund its operations (although it has since borrowed more money to pay down some of its older debts). And it’s been booming ever since.

Related stories

The best way to see the turnaround is to look at Netflix’s free cash flow – the money Netflix has on hand after the company pays for its ongoing operations. In 2019, Netflix had negative cash flow of $3.3 billion. By the end of 2023, it was a positive $6.9 billion.

That doesn’t mean Netflix will spend wildly now that its thesis has been confirmed. The company has made it clear to Wall Street that it will remain stagnant for a while after years of rising programming budgets.

The company now knows what investors want more money and more Make a profit, which is why the company is pursuing several things it previously said it would never do: selling ads, for example, and making it harder for people to “share” passwords.

Its competitors are trying similar moves – but with much smaller user bases and more limited program budgets, making it all the more difficult for them to compete.

This isn’t news if you’ve been following the company (see also this stock chart). Still, it’s good to keep it in mind.