From NetFlix: "The Biggest Issue Holding Back Much Stronger Growth Is Payments"

Tyler Durden's picture




 

Everyone's favorite Whitney Tilson repeat-endorsed, slow motion trainwreck, NetFlix, has reported results after hours. They are, as expected,  terrible with lots of cash burn, declining margins and excuses, and as a result the short squeeze is over and the stock is imploding after hours. Among the details:

  • Q3 Gross profit declined to 26.8% from 27.6% in Q2 and 34.7% in Q3 2011.
  • Total cash declined by $32 million
  • Free cash flow was -$20 million, despite positive "net income"
  • "Significant uses of cash in the quarter (relative to net income) were cash payments for content (in excess of the P&L expense), cash payments for PP&E (including cache boxes for our Open Connect program), and reductions in miscellaneous accounts payable and accrued expenses."
  • Q3 Streaming content obligations were flat at a whopping $5 billion. $2.1 billion is due in the next year. The brilliance strikes here first. These obligations "not include obligations that we cannot quantify but could be significant." Uh... What?

And while the firm forecasts a net income loss in Q4 of ($13)MM to $2MM as seen in the table below, which means a far worse free cash flow loss in Q4, the absolute pearl was the following:

"The biggest issue holding back much stronger growth is payments."

Priceless.

Full NFLX outlook:

 

And the firm's letter to what investors are left (pdf).

 

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Tue, 10/23/2012 - 16:48 | 2913967 no taste
no taste's picture

It seems we are at a point where people are choosing to buy food instead of rent videos.

http://howstupidare.blogspot.com/2012/10/how-stupid-are-tv-networks.html

Tue, 10/23/2012 - 16:55 | 2913985 vast-dom
vast-dom's picture

"The cause of our insolvency is due to our insolvency." 

Tue, 10/23/2012 - 17:00 | 2914000 ParkAveFlasher
ParkAveFlasher's picture

"Dudes, you totally have to pay us back!  We have, like, investors.  I'm totally not harshing you!  Yes you can keep DSOTM another week."

Tue, 10/23/2012 - 17:05 | 2914008 walküre
walküre's picture

How much of NFLX cash has gone straight to Lalaland? This is not good news for Hollywood.

Tue, 10/23/2012 - 17:09 | 2914022 pods
pods's picture

I almost shit when I read 5 BILLION for content they stream!

Imagine if they actually streamed anything worth watching?

(current or former NFLX customers know what I am talking about)

pods

Tue, 10/23/2012 - 17:19 | 2914043 ghengis86
ghengis86's picture

The biggest issue holding back Corzine's prosecution is payments.

-AG Holder, Barry, et al

Tue, 10/23/2012 - 18:25 | 2914233 MillionDollarBogus_
MillionDollarBogus_'s picture

I read books for entertainment.

What is a Netflix...???

Tue, 10/23/2012 - 18:56 | 2914346 malikai
malikai's picture

I read books for knowledge.

ZH is for entertainment.

Tue, 10/23/2012 - 19:38 | 2914441 knukles
knukles's picture

I read ZH for knowledge

I play with my dinky for entertainment.

Tue, 10/23/2012 - 17:26 | 2914067 Tijuana Donkey Show
Tijuana Donkey Show's picture

This is why Hollywood needs to die. 5 Bil for bullshit? It's almost as bad as the NFL or NBA. 

Tue, 10/23/2012 - 17:46 | 2914126 walküre
walküre's picture

The NHL is dead and it's over money. They don't say it straight up but the reality is that nobody wants to pay billions for these hockey stick wielding clowns. The revenues are just not there.

How long can they afford billions to glorified ball players?

Tue, 10/23/2012 - 19:51 | 2914481 mick68
mick68's picture

I'm seriously considering ditching Netflix. Content blows hard and now I see they need to tighten up profits, so it's only getting worse. Wife still wants it or it'd be gone by now.

Tue, 10/23/2012 - 22:53 | 2914824 Albertarocks
Albertarocks's picture

Don't worry about it bro.  Everybody shits once in a while.  It's normal.

Tue, 10/23/2012 - 17:02 | 2914004 FL_Conservative
FL_Conservative's picture

You mean....like.....cash flow is....like.....important????

Tue, 10/23/2012 - 17:10 | 2914011 Matt
Matt's picture

They would be doing great if they spun off / wound down the international streaming segment, which seems to be a massive loser. I understand their growth plan is all about getting big in as many markets as they can. However, it doesn't seem like international growth is working. You gotta know when to hold'em, you gotta know when to fold'em ...

 

EDIT: well, not great, since the more profitable DVD side is shrnking faster than the streaming side is growing, but at least cash flow positive. Scrap international and expand domestic streaming content.

Tue, 10/23/2012 - 17:08 | 2914021 CPL
CPL's picture

I recall similar excuses during dot.bomb.

 

"We have a great idea...now if it was actually worth something to someone other than speculative shareholders."

Tue, 10/23/2012 - 19:08 | 2914381 CPL
CPL's picture

Name a kid under 6 in the last 40 years without a Seaseme Street doll.

 

There's your answer.  Cheap puppets, some kid with release forms, bam...you got a show.

Tue, 10/23/2012 - 17:02 | 2913998 camaro68ss
camaro68ss's picture

My familys 240 million dollar company showed net gains year over year and we had the same problems to, payments. if you have 40 million in receivables and have not been paid in 120 days. You might as well wright it off because now a days, if you don’t get paid in 60 days, you’re not getting paid.

you dont have profits if you cant collect the cash. we went under for it.......

off to my new job, welcome to <fill in the blank> can i take your order.

Tue, 10/23/2012 - 17:43 | 2914118 max2205
max2205's picture

Switched to Apple TV last year

Tue, 10/23/2012 - 17:46 | 2914123 max2205
max2205's picture

As long as they still pay the USPS all those jobs are safe

Tue, 10/23/2012 - 17:24 | 2914062 Larry Dallas
Larry Dallas's picture

Its all about the wages and wage growth.

Superfluous expenditures will decimate most discretionary businesses.

Tue, 10/23/2012 - 18:31 | 2914248 NotApplicable
NotApplicable's picture

Wage growth?

Umm... that was last century.

Tue, 10/23/2012 - 18:13 | 2914191 Stoploss
Stoploss's picture

Where is the token flacid penis chart that usually goes with the after hours unfluffing of the stock?

Tue, 10/23/2012 - 19:51 | 2914473 stocktivity
stocktivity's picture

Ha Ha ,,,dopes. That is priceless Tyler....other than payments, we would be doing better....hee hee ...dopes. It's all bullshit but sometimes the bullshit is funny.

Tue, 10/23/2012 - 16:50 | 2913969 pragmatic hobo
pragmatic hobo's picture

on the brighter note, Hastings might finally turn profit on his FB holdings.

Tue, 10/23/2012 - 17:02 | 2914005 LongSoupLine
LongSoupLine's picture

Update:  Whoops...or maybe not.  Facebook just anounced Red Bull sponsorship.

bye bye FB, you piece of shit reason for the dumbing down of the world.

Tue, 10/23/2012 - 17:10 | 2914025 CPL
CPL's picture

I bet everyone gets to be friends with Red Bull now.  Or at least heavily influenced.

Tue, 10/23/2012 - 17:13 | 2914031 The Gooch
The Gooch's picture

Especially the "influenced" Ferrari-driving grand-kid heir. - http://www.guardian.co.uk/world/2012/sep/06/thai-police-red-bull-heir-dr...

Tue, 10/23/2012 - 17:33 | 2914090 chet
chet's picture

I wonder if they'll keep dumbing down until they get My Space's reputation, then some new network will come along and claim to be the new high-brow yuppie network, until they in turn allow everyone and their uncle in....  Many a good nightspot has been lost in this fashion.

Tue, 10/23/2012 - 22:06 | 2914751 ForTheWorld
ForTheWorld's picture

It's called Diaspora. It's already been through the cool, unknown entity factory, now people are flooding in, and since registrations were opened to the public, the signal to noise ratio has dropped dramatically.

Tue, 10/23/2012 - 16:51 | 2913973 catacl1sm
catacl1sm's picture

I'm almost at the point of shutting of cable too. Hulu is ony $8.

Tue, 10/23/2012 - 17:02 | 2914006 Vincent Vega
Vincent Vega's picture

I turned off cable about 3 yrs ago. I gave my flat screen to my parent's. Honestly, the first few days/weeks were difficult but now I don't miss it. In fact, if I'm at a friends house or a bar/restaurant I literally turn my head. I can't believe I ever watched it. I do own some movies on DVD and will sometimes watch those on my PC. I've picked up a few new hobbies to occupy time that was once spent sitting on the sofa. Glad it's gone!

Tue, 10/23/2012 - 17:30 | 2914084 blunderdog
blunderdog's picture

It's been over a decade for me, and I've developed that same almost *allergic* response to the teevee. 

News shows and commercials are by far the worst offenders.  I can tolerate a few hours of the stuff in desperate circumstances, but whenever it happens I'm reminded of just how terrible that crap is.

"Shut the cousins up."  --Guy Montag

Wed, 10/24/2012 - 04:19 | 2915139 MisterMousePotato
MisterMousePotato's picture

I have not had a television since 1984. (Coincidence?)

Don't miss it at all, although I did a bit at first.

But now ... want to watch weather radar (who doesn't?), well, that can be found on the net. Only better.

I used to like to take the television upstairs to the bathroom and set it on the toilet seat, where I would watch Monday night football, drink gin, and take a long bath. That ... I missed. Hm. Maybe I still do a bit.

Missed the debates. Oh? You can watch them online? But why would you want to? Actually, this (http://www.youtube.com/watch?v=WpMPu5p_QXU) is kinda worthwhile watching.

Y'all talk about MSCBN (?) babes. Well, I Google their names, and then >images.

I think I'm fairly well informed.

I know who Snooki is. (Although I don't think I know what she looks like.)

I know who Christine Legarde is, and I do know what she looks like.

So .. meh.

Tue, 10/23/2012 - 19:00 | 2914212 JuliaS
JuliaS's picture

10 years with no TV or a phone landline. 2 months without a cell phone. E-mail, instant messaging and Skype instead. Communication on my terms.

Giving up the cell phone was the most liberating decision in recent memory. Aside from having one less bill to pay, the ability to disappear and not be bothered is indescribable. I know phones can be turned off, but how many actually do that voluntarily? I used to shut mine off only at hospitals and other places where posted signs demanded it. Otherwise having no phone was like missing a body part.

I've gotten a good kick out of people asking me for my number and telling them I had none. Wish I could do the same thing with my bank account, but unfortunately I get paid by check and bills/utilities are auto-deducted.

Each time I give something up I feel better. Don't get me wrong. I'm not about to go full hippie-treehugger. I'm simply noticing that many of the devices and services around me provide a redundant function. Internet seems to be capable of replacing most subsciption based offers saving me time and money in the process.

Tue, 10/23/2012 - 23:29 | 2914869 DaveyJones
DaveyJones's picture

am toying with the thought but the kids would kill me. I prefer to go outside and garden or the web. Why anyone would limit their news and entertainment to those industries is beyond me. 

Wed, 10/24/2012 - 00:30 | 2914966 SoCalBusted
SoCalBusted's picture

I've read this "I got rid of TV" bullshit for several years.  I think you are all fucking crazy.  TV is the best form of intelligence gathering.  I want to know what the other side is saying.  I want to know what the propaganda machine is spewing.  I want to be able to show my kids the fine bright line between the truth and the lies.

Sticking your head in the sand, covering your ears, eyes and shouting la la la la, doesn't cut it for me.

Keep your friends close and your enemies closer.

Wed, 10/24/2012 - 02:22 | 2914987 JuliaS
JuliaS's picture

Ahem, are you implying that TV content is not available online? Internet's not just for e-mail and porn, you know.

Wed, 10/24/2012 - 10:48 | 2915715 Vincent Vega
Vincent Vega's picture

I waged 10 SAE's that I get way more info from my PC and Bloomberg than you garner from TV. Turning off TV does not equal sticking one's head in the sand. Since getting rid of my TV I read much more, I have learned to garden and canning, I have received my HAM radio license, I spend more time exercising, I cook more often/healthier, to name a few.

Tue, 10/23/2012 - 16:50 | 2913974 insanelysane
insanelysane's picture

The biggest issue with me buying more physical is payments.  What a co-inky-dink.

Tue, 10/23/2012 - 16:52 | 2913975 Renewable Life
Renewable Life's picture

News Flash....... People don't pay, profits go down!!!!!!

I hope the rest of the tech sector takes notice and so should all non essential sectors, because this story will be coming to every corporation soon!! If people can't pay, or no longer want to pay, for your service or product, your fucked!!!

Reality Bites, doesn't it?

Tue, 10/23/2012 - 16:59 | 2913989 TruthInSunshine
TruthInSunshine's picture

If I were a turnaround specialist, and advising NFLX, I'd sympathize with their plight, but remind them that literally receiving payments is a core component in terms of running a successful, profitable business.

It would appear that far less expensive, far more reliable, and equal if not better quality content than what NFLX provides can increasingly be found at far more efficient competitors, much of which is or will soon be offered in the streaming variety.

Tue, 10/23/2012 - 18:27 | 2914238 Water Is Wet
Water Is Wet's picture

I'm going to disagree with your last point.  There are so many shows on Netflix, and it costs $8 a month.  That is less than 1 ticket to 1 movie.  If you are talking about pirating torrents, yeah I guess there are "competitors."  Otherwise, Netflix is a reasonably priced service.

Tue, 10/23/2012 - 19:30 | 2914426 NidStyles
NidStyles's picture

$8 a month for garbage. Literally, there is nothing on Netflix that you can not get elsewhere for free, or that's worth that $8 a month.

You'd be better off spending that $8 a month on something else, like Silver or food.

 

Tue, 10/23/2012 - 21:53 | 2914731 TruthInSunshine
TruthInSunshine's picture

@Water Is Wet -

 

On that point you raise, Amazon, just as one example, is offering streaming content now. It's in its infancy. I would bet that providing highly subsidized, if not completely free, content, of the HD streaming variety, is on the business plan horizon for many companies, in an effort to lure users and then monetize another aspect of the service, such as advertising (or multiple other aspects).

The fact remains that NFLX has a low cost to entry business model, and lacks anything in terms of a significant proprietary moat to ward off competitors.

NFLX is particularly vulnerable because it doesn't even own the infrastructure it depends on to pipe its content to its end customers.

Tue, 10/23/2012 - 16:53 | 2913977 JPM Hater001
JPM Hater001's picture

Since it's NETFLIX it is only right to use a movie to describe the results. 

The Postman trying to deliver mail to Waterworld.

 

Tue, 10/23/2012 - 17:13 | 2914029 pods
pods's picture

How about NFLX gets to play Alderaan in Star Wars?

pods

Tue, 10/23/2012 - 17:29 | 2914078 Tijuana Donkey Show
Tijuana Donkey Show's picture

It's as if a million longs screamed out all at once, and then went silent. Cue the R2D2 algo bot to make a run on the death market star.

Tue, 10/23/2012 - 17:46 | 2914127 Orly
Orly's picture

Wow, two Costner references slipped in there.  Where's Elliot Ness when you need him, playing baseball?

:L

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