Longtime free cash flow burner Netflix (NFLX) is now telling investors a different story.
Netflix generated a whopping $2.1 billion in free cash flow in the first quarter, but that was somewhat understated in its latest earnings call late Tuesday.
Free cash flow is operating cash flow minus capital expenditures. Businesses basically achieve the free cash flow mark by making profits and carefully investing those profits in “things” such as factories and equipment. Any cash left over can be used to further enhance the total return potential for investors through share repurchases and dividend increases.
Netflix has long had negative readings (or spills) on its free cash flow line. This reflects, in part, aggressive investment in the business and a focus on low prices (which generated losses).
Recall that from 2015 to 2019, Netflix posted negative cash outflows of $10.5 billion. The company delivered positive free cash flow with $1.9 billion in free cash in 2020 as the COVID-19 pandemic spurred surging profits. After that, the company said that in 2021 he will record free cash outflow of $132 million, and in 2022 he will record free cash flow of $1.6 billion.
However, this dynamic is now starting to turn on the company consistently, improving its free cash flow prospects. In part, it reflects better management and a mature business.
For example, the company is struggling to spend on content.
Management told analysts on the earnings call that it plans to spend about $16 billion on content this year.
Netflix, meanwhile, continues to stray from its bottom-end pricing roots to improve its bottom line.
Netflix will raise subscription prices in 2022 and is aggressively rolling out technology to support paid password sharing. This has the effect of raising prices.
Meanwhile, Netflix has raised its 2023 free cash flow guidance to “at least” $3.5 billion, up from its previous $3 billion. In the first quarter, he spent $400 million to buy back shares, indicating more buybacks are on the way.
Netflix CFO Spencer Neumann said, “Share buybacks will accelerate this year.
And Wall Street is sniffing out Netflix as a cash flow strategy.
“Fundamentals have clearly improved significantly, and our first quarter results included two ‘value catalysts’ — Netflix forecasts free cash flow of more than $3 billion in 2023. to more than $3.5 billion (currently, annual cache content spending could be down by nearly $16 billion). , and the company has committed to repurchase its first share in over a year ($400 million) and accelerate its equity repo through 2023,” EvercoreISI analyst Mark Mahaney emphasized in a client note.
“Financially, we continue to see Netflix producing a 20% premium EPS growth algorithm,” Mahaney added. year) and share the repository. “
And all of this is welcome news, given that Netflix’s earnings guidance has caused some investors to turn off the trading screen.
Brian Sotzi Editor-in-chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and LinkedInAny tips on deals, mergers, activist situations, etc? Email brian.sozzi@yahoofinance.com
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