Tuesday, July 18, 2017

If You Use Netflix, This is Why You Need to Thank Janet Yellen

There is an incredible number of nouveau high tech firms that are experiencing huge losses. Uber lost $2.8 billion last year.

The firms are able to sustain these losses because of the remarkable Federal Reserve money printing. If the Fed wasn't printing money the way they are now, there is no way the funds would be available to support these losses.

Here's a look at the money the Fed has pumped into the system since the 2008 financial crisis:

Simon Black, at Sovereign Man, explains the amount of debt that Netflix has taken on, debt funded by Janet Yellen money printing:
Last night Netflix executives announced that a record 104 million people worldwide now subscribe to its service.

This number handily beat what analysts were expecting, and the stock SURGED nearly 9% to an all-time high. Netflix is now trading at more than 200 times earnings.

Look, I like Netflix. House of Cards is entertaining.

But you shouldn’t invest in a business based on its number of customers and quality of content alone.

And if you dive into the company’s numbers, you’ll see immediately that Netflix is hemorrhaging cash.

To be fair, Netflix earned a profit last quarter. But as we’ve discussed before, ‘profit’ (or ‘net income’) is extremely misleading.

Accountants use all sorts phony accounting tricks to manipulate a company’s net income. So, if you really want a good understanding of a company’s performance, take a look at its Cashflow Statement.

The Cashflow Statement strips out all the accounting nonsense and simply shows whether or not a business made money.

So, while Netflix has a record number of viewers, the operating cashflow of the business was actually NEGATIVE $1.9 billion over the last twelve months.

And things get worse…

If you include the additional capital investments the company has to make in order to stay in business and remain competitive (like acquiring new content), the total “Free Cash Flow” is NEGATIVE $2.2 billion.

And the business doesn’t expect this to change anytime soon.

On its Investor Relations website, Netflix clearly states that its aggressive investments will “continue to weigh on [Free Cash Flow], even after we achieve material global profitability.”

Translation: Even if Netflix is successful, it still plans on burning through cash.

In the meantime, the company has to make ends meet by taking on increasing amounts of debt. In fact Netflix’s total debt level soared 45% just in the last three months to over $4.8 billion.
Of course, this is an unstable situation and Yellen will have to stop printing money at some point and then Netflix will have to cut back on its new films and Uber will have to stop subsidizing its drivers.


1 comment:

  1. A 9% surge sounds like a short squeeze to me. We'll see if that gap gets filled.