While the stock of NFLX is soaring in the after-hours session on what is perceived to be a big blow out of consensus, and yet another massive if brief short squeeze, we have had a chance to take a look at the actual excel support [2]behind the data, completely free of contextual spin as per the investor letter [3]. Here are some of our findings.
- Netflix generated $33.9MM in "Free Cash Flow". Of this $25.6MM was from change in Net Working Capital; this compares to ($7.6MM) drain from NWC in Q3.
- Of Netflix' $186.6MM in Free Cash Flow in 2011, $110MM was from Net Working Capital
- Net Working Capital as a source of Netflix "cash flow" has grown from 23.3% in 2009, to 45.4% in 2010 to 59% in 2011
- NWC has "generated" $22.6MM in cash in 2009; $59.5MM in 2010; and $110MM in 2011;
- How is it that NWC has been a constant source of cash for year after year after year? What happens when this balance sheet drainage reverse itself and the company is forced to fund working capital?
- The company ended Q4 and 2011 with $508MM in cash compared to $159MM in Q3, and $194MM a year prior; this was courtesy of a $200MM equity raise and $198MM in debt issuance to a "related party"
- Netflix Q4 Operating Margin was 8.1%, based on $70.8MM in EBIT and $875MM in revenue; this is the lowest Operating Margin since before 2009 (we dont' know what quarterly margin was prior to 2009); Q4 EBIT of $70.8MM dropped by $26Mm from Q3's $96.8MM
- Domestic streaming paid subscriptions (the bulk of the Company's revenue at$476MM, and $52MM contribution profit) decrease by 1.7% sequentially, Free Subscriptions soared by 62%
- Domestic DVD subscriptions, which generated $370MM in revenue
and the bulk of the company's $193MM in contribution profit in Q4, plunged by 20% sequentially; - Consolidated free subscribers rose by 35.6% from 1,437K to 1,948K
So what was the bull case again, especially with this news [4]in mind.