Friday, May 14, 2021

Why Netflix stock is soaring again

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In the early days of Netflix, Co-CEO Ted Sarandos used to bolster his team to fill the content department with a look to the future.

“I used to try and get the team to understand the potential scale of the business by saying things like, someday we’ll be so big, we’ll have an anime vice president. Sarandos remembers this week. “And then it’s a day now.”

That’s right – Netflix hired Rob Pereyda last year as the first person in charge of anime, the Japanese action cartoon genre.

And “it’s a day now” as the company hit two milestones at the end of 2020. Netflix has attracted over 200 million paying subscribers. And, having spent billions and billions of other people’s money to cover huge deficits over the past decade, Netflix has achieved financial self-sufficiency and created a heavyweight in sustainable entertainment.

That must have been the vibe at Netflix headquarters before the company announced its results Tuesday afternoon:

Wall Street, as usual, focused on the small picture. How many subscribers did they add in the quarter, compared to how many did they say they would add compared to the average number analysts planned to add? (The answers, by the way, were 8.5 million, 6 million, and 5.9 million, respectively.)

But it was more the overview that made the stock bigger. The revelation that the company would have positive cash flow this year despite the spending was highlighted (or buried) on page 5 of Netflix’s quarterly earnings letter to shareholders. nearly $ 20 billion on new programming. And with $ 8 billion in cash, that means “we believe we no longer need to raise external funding for our day-to-day operations.” Cash will be so plentiful that the company will even buy back some of its stock, a common price support practice that Netflix hasn’t done since 2011. Even investors who haven’t watched a second of Bridgerton know that this is a positive point.

Netflix stock, already worth more than $ 500 billion, rose 14% in pre-market trading on Wednesday morning to nearly $ 574, less than $ 2 from its all-time high. Although it jumped 67% last year as a lead member of the pandemic portfolio, the stock had already lost 7% so far in 2021.

There was another change, more tone and approach, highlighted in the letter to shareholders. Netflix was known as the studio who would not share the number of views and I wouldn’t even tell stars and producers how their shows and movies performed. But now there is data galore. Midnight sky, the dystopian sci-fi thriller directed by George Clooney, drew 72 million homes in its first four weeks. Lower rated holiday movie Holidate starring Emma Roberts has drawn 68 million homes. And the new favorite of the House of Pressman, the French mini-series Lupine with Omar Sy released this month, is expected to exceed 70 million in its first four weeks.

That’s wonderful!

Aaron Pressman
@ampressman
aaron.pressman@fortune.com



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