Netflix will bleed more cash this year than analysts expected, but the payoff won’t be more subscribers.
Driving the news: In its earnings report, Netflix said it expects its free cash flow deficit to be $3.5 billion this year — more than the $3 billion loss it previously estimated (the company says it's because of a change in corporate structure and investments in real estate and infrastructure).
- Netflix also dialed back its expectations for subscriber growth, "anticipating a net add of 5 million paid subscribers for the second quarter," which is below Wall Street’s expectations for 6.09 million new paid members, as Axios’ Sara Fischer reports.
- CEO Reed Hastings said last quarter that this year would be the peak for cash burn: "We’re still expecting free cash flow to improve in 2020 and each year thereafter, driven by our growing member base, revenues, and operating margins."
Why it matters: Wall Street has given Netflix’s cash burn a pass. The spend on content usually translates into more subscribers driven to the platform for said content. But investors’ knee jerk reaction was to sell the stock after its less-than-stellar guidance.
- The stock rebounded after initially falling as much as 5% after the bell on Tuesday.
What to watch: With the launch of Disney+, viewers have yet another, cheaper option. This isn't lost on investors. Analysts, however, point out that streaming is not necessarily a zero sum game.
- Of note: In the face of the heightened competition, Netflix is raising — not cutting — its monthly cost.
Go deeper: The revenue battles of Big Media vs. Netflix