Netflix Isn’t In Any Hurry to Expand Profits

Netflix‘s (NASDAQ: NFLX) new co-CEO, Ted Sarandos, might feel a little weird these days. The video-streaming pioneer is producing hundreds of millions in positive free cash flow after its second straight quarter in the black. What’s the head of content to do with pockets full of cash during a pandemic?

Netflix previously hadn’t produced two consecutive quarters of positive free cash flow since 2014. Now it’s expecting break-even cash flow or better for 2020.

That won’t last, though. Sarandos and the rest of the Netflix team are eager to ramp up production again, and CFO Spence Neumann expects free cash flow to dip back into negative territory again next year. And despite operating margin expanding to 22% last quarter, Neumann still expects to manage the company to a 16% margin for 2020 and 19% in 2021.

Reinvesting revenue

The surge in subscribers in the first two quarters of 2020 has led to higher revenue than anyone anticipated at the start of the year. Management reiterated its warning that it sees a lot of that subscriber growth as a pull-forward of members that may have signed up later in the year. That’s evident in its forecast for just 2.5 million net subscriber additions in the third quarter, versus 6.77 million last year.

Source: Nasdaq

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