Morgan Stanley predicts when Netflix will stop burning money and start generating billions in positive free cash flow
Netflix’s negative free cash flow, which reached a high of $3 billion in 2018, has been one of the few sources of worry for Wall Street analysts and investors.
Netflix has said it needs negative free cash flow to fund its increased investment in original TV shows and movies, but it’s hard to assess the value of that content over their lifetime, making it difficult to project the company’s financial future.
But Morgan Stanley sees signs that Netflix’s financials are on the right track and predicts the streaming giant will become free cash flow positive in 2021 and reach over $10 billion in positive free cash flow in 2025.
As Netflix has morphed from David into Goliath, there has been one lingering question lurking around the positive chatter: When is this company going to stop burning cash?
Netflix said it expected its negative free cash flow to reach $3 billion in 2018, up from $2 billion in 2017 (we’ll know for sure when it reports earnings on January 17).
Why is that number soaring?
Netflix CEO Reed Hastings explained the reason for the rise in cash burn best in 2017.
“When we produce an amazing show like ‘Stranger Things,’ that’s a lot of capital up front, and then you get a payout over it over many years,” Hastings said. “And seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest.”
Netflix’s production of original series like “Stranger Things” has ramped up over the last few years, and the company has made moves to own the entire production and distribution pipeline by signing big-name hitmakers like Shonda Rhimes and Ryan Murphy in deals worth hundreds of millions. That strategy has been validated as competitors from Disney to AT&T have announced their own streaming …read more
Source:: Business Insider