With 260 Mn subscribers, Netflix has firmly established itself as the leader in the OTT platform industry. 🥇
However, can Netflix strike a balance between satisfying investors and pursuing further growth? Let's delve into some of its key treasury metrics over a period of five years:
📺 $6.93 Bn in free cash flow
📺 8.28% decrease in total debt
📺 352% increase in operating cash flow
This performance, however, comes at a significant cost - Is Netflix’s $1.44 Bn in free cash flow sufficient to justify its $16 Bn debt? Let’s explore the financial health of Netflix in detail!
Netflix's 5-Year Free Cash Flow: $1.44 Bn Average 💰
Over the past five years, Netflix’s average Free Cash Flow (FCF) has been $1.44 Bn, trailing the industry average of $5.33 Bn.
In 2019, Netflix’s FCF stood at -$3.14 Bn. By 2023, it had made a dramatic turnaround to $6.93 Bn!
💡 But, what’s driving this rise? Let’s explore:
1. Subscription price hike: Netflix has raised its subscription prices in the US, UK, & France, positively impacting its operating cash flow.
2. A successful crackdown on password sharing: Netflix’s crackdown on password sharing added 9 Mn new subscribers globally, boosting third-quarter 2023 revenue to $8.5 Bn, an 8% increase from 2022.
3. Introduction of Ads plan: In November 2022, Netflix introduced a more affordable Ads plan, accounting for 40% of new sign-ups in available markets.
Netflix's Debt Decreased by 8.28% Over the Past 4 Years 📉
Netflix’s financial trajectory over the past five years presents a fascinating case study of strategic debt management. In 2020, Netflix reached its highest level of total debt at $18.5 Bn.
By 2023, its debt had been trimmed to $16.9 Bn—a decrease of 8.28% from the 2020 level.
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Netflix’s evolving debt management suggests a strategic recalibration. What’s likely to trigger this shift? Let’s dig deep.
💡 A Shift in Business Strategy! Saying “No” to Debt-driven Growth
But, why did Netflix accumulate such significant debt initially? Learn here.
Examining Netflix's Current & Debt-to-Equity Ratio 📊
Netflix’s Exhibits Strong Financial Health for Short-term Debt Coverage
From 2019-23, Netflix’s current ratio fluctuated between 0.9 and 1.25. Over the five years, the ratio’s average of 1.078 remained close to the industry average of 1.079.
Reason for the inconsistency? In 2019 & 2021, Netflix’s current ratio fell below the ideal value because current liabilities surpassed current assets. The primary cause was aggressive spending on content, production, and expansion into gaming.
Netflix’s Debt-to-Equity Ratio: A Decreasing Trend
Netflix experienced a consistent decrease in its debt-to-equity ratio—from 1.97 in 2019 to 0.71 in 2023:
What does the Future hold for Netflix? 🚀
Netflix's substantial investments in content are attracting more subscribers, resulting in a 1751% increase in net operating cash flow from $393 Mn in 2021 to $7.2 Bn in 2023.
With strategic shifts reducing debt reliance and increasing profits, Netflix's financial future appears strong, marked by decreased net debt and a declining debt-to-equity ratio.
