These longtime Netflix bears say it could get even worse for investors.
With the subscriber loss in the first quarter of 2022 and guidance for further subscriber deterioration in the second quarter, the weaknesses in Netflix’s business model are undeniable, as we’ve been pointing out for years.
Strong competition is taking market share, limiting pricing power and making it clear that Netflix cannot generate anything close to the growth and profits implied by the current stock price. A huge red flag Netflix’s free cash flow was positive in 2020 for the first time since 2010. But positive FCF comes almost entirely from Netflix cutting content spending during the COVID-19 pandemic. Netflix cannot generate positive FCF and increase content spending.
Read: As Netflix hemorrhages subscribers amid increased competition from Disney, Hulu, HBO, Amazon Prime and Apple — have we finally reached peak streaming? Netflix’s implied net operating profit after tax, or NOPAT, in this scenario is $7.1 billion in 2027, which would be 3.6 times the 2019 NOPAT of Fox Corp, 1.9 times the 2019 NOPAT of Paramount Global, 1.1 times the combined 2019 NOPAT of Paramount Global and Warner Bros. Discovery, and 67% of Disney’s 2019 NOPAT.
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