This streaming service finally raised some of the cash they needed very recently. Their stock has been taking a beating. because the money cost them alot more than their investors expected - just as predicted.
The service grabbed all the cash they could, for now. They had to borrow at junk bond rates, for the first time.
Problem is, the cash was only about enough to fund about 6-8 months of their projected cash burn this year.
The cost of borrowing even more money would be quite prohibitive.
So what happens to their stock price the next time they need cash, and where do they get it from?
The service grabbed all the cash they could, for now. They had to borrow at junk bond rates, for the first time.
Problem is, the cash was only about enough to fund about 6-8 months of their projected cash burn this year.
The cost of borrowing even more money would be quite prohibitive.
So what happens to their stock price the next time they need cash, and where do they get it from?
Spotify?
ReplyDeleteIt’s not rocket surgery. I’d go three or four months without spending very much on new content (maybe a few old catalogue movies that aren’t worth month.) People won’t notice. And there’s your money.
ReplyDeleteI assume Netflix and the junk bonds since HedgeHoff loves to hate them.
ReplyDeleteOh no a Hedge blind time to stroke out
ReplyDeleteThis sounds kind of like a Jeff Bezos move so I'm going to say Amazon.
ReplyDeleteHow is this even a blind when CNBC, Yahoo, etc. have the information out there on it and it's in SEC filings.
ReplyDeleteOf course it's Netflix.
ReplyDeleteor Spotify, the music streaming service. It lost 1.5 billion last year, and 700 million the year before.
ReplyDeleteHow can a company lose billions for years (it's never made money)? Yes, growth and reinvesting over showing a profit, but still... it shows how big money always gets bigger -- the early investors can lose hundreds of millions for years to potentially make more billions, even if it takes a decade...?
I suppose the plan is to be bought by some giant co. (Apple, Amazon) eventually, who uses it as a loss leader for other services (like Amazon Prime) or perhaps be the last-man standing, then make money as a monopoly. In any case, very hard to understand how so many massive companies (including Amazon)
Mr. Hedge, is there something else going on? Vast amounts of cash that need to be written off? Or chicanery in Tesla, Spotify, Twitter, Netflix, Amazon, Soundcloud losing so much money for so long?
I don't know why your last paragraphs are questions 😉
DeleteTidal, to be different
ReplyDelete@Moose, it's Hedge funds/PE firms that drive them to go public. Overvaluation based on goodwill/intangibles so they're all called Unicorns. This one is Netflix. Spotify went public b/c typically in the Series A-E the PE/Hedge funds require the entity to go public within 5 years or there's a huge fee. Tech firms are a joke when it comes to actually being financially sound. All Netflix really needs to do is limit the number of people on an account, they'd break even LOL
ReplyDeleteI don't follow the markets, but weren't people bragging on Netflix's rising stock price like a freaking week ago, citing that as proof that it's doing fine?
ReplyDeleteYeah anonymous shill brigade shows up and dickwaves at Hedge, BUTWHATABOUT THE PRICE IS UP TODAY HUH?
DeleteThis indictates one of two things.
1. The shills have no idea what they're actually talking about.
2. The shills DO know what's going on and that's why you see desperate rearguard actions like astroturfing CDAN comments
Uh, actually, we noted that Netflix greatly exceeded expectations for the quarter and was up. Not “Netflix is up today! Ha Ha!” At least get it right.
DeleteLegit question... does Mr. Hedge think he's influencing the market by sending these blinds in? His blind items really come across as someone trying to influence the market all so he can get the stock price down, buy a bunch and watch it go up again. What's the point of these "blinds" that aren't about celebrities or pseudo celebrities?
ReplyDeleteCDAN has been about the sharing of information via blind items, by insiders - to the people. It only takes a relatively short time to perform this occasional service.
DeleteIn certain cases, such as finance, the WHO is not as much of a BI as the WHY or WHAT (in contrast to entertainment).
The theme of an increasing price of money, returning to historical norms... and the dampening effect always manifested upon speculative activity, is a theme which will affect the economy, markets, and your money - for a long time to come.
In this case, this streaming service has been flooding Hollywood, and it's celebrities, with gushers of easily borrowed money for quite some time. That money is getting sharply more expensive. The spigots turning off will have profound impacts on Hollywood and its celebrities who depend on those spigots.
Netflix is a societal pacification tool, not a business.
ReplyDeleteY'all, it's Netflix.
ReplyDeletehttps://www.bloomberg.com/news/articles/2018-04-23/netflix-selling-1-5-billion-of-junk-bonds-to-finance-more-shows
What Heather said. Tech firms are valued on hype, not profits.
ReplyDeleteNetflix has a structural problem that's not really their fault, beyond the bad decisions that are their fault and reflect a company that's more concerned about impressing people to keep the hype going than operating well. The problem is that they started offering an unlimited service at a time when the technology -- primarily the bandwidth available for home Internet -- limited it for them. As technology changed and people started getting DSL/cable and now fiber to their homes, "unlimited" grew exponentially.
It's a problem shared by any company that moves data, which is why the companies in the middle, from ISPs to data carriers, are having to change to adapt to it. They sold customers plans for $X/month based on an estimate of how much data they would use on average, and that estimate now looks naive. But people are already used to the idea that Internet usage is an all-you-can-eat buffet for a set price, so it's hard to get away from that.
There's also the TV problem: people are already conditioned to think of TV as something you just turn on and leave on all day. Before they had big bandwidth at home, that wasn't a problem for Netflix, because again, the technology choked them down to a reasonable amount. Now the home that streams to 2-3 TVs all day long is able to pull full HD to them all, and it doesn't matter whether anyone's in the room.
That's why I've considered Netflix unsustainable for a few years now, before I heard anything about their business practices. The math just isn't going to work, and something will have to give. They fought so hard to save Net Neutrality because that at least kept other providers along the data stream from shaping their data and making it worse for them, but even that was a stop-gap. They're going to have to raise their prices considerably, or limit usage -- sell plans at X hours of streaming per day, that kind of thing. You can't just keep giving customers more and more of a product without charging more unless the product gets cheaper to make, and that's not happening.
So tired of the weekly doom and gloom Netflix blind.
ReplyDeleteRoman Empire: Reign of Blood is pretty good on Netflix. Sean Bean narrating and lots of my favorite New Zealand actors like Aaron Jakubenko and Jared Turner. Reminds me of the way the History Channel used to be, except a lot more violence and nudity.
ReplyDelete@Cail: Excellent dissection.
ReplyDeleteThe game has changed, streaming is not going back in the box.
ReplyDeleteI guess most people on CDAN have something in common with the blind poster. We'd all have more money if Netflix failed, us from no more monthly subscription fee, him from shorting the stock.
ReplyDeleteMakes their recent $300 million deal with Ryan Murphy seem kind of dumb.
ReplyDeleteNetflix doesn't pay for customer bandwidth, their customer's do through their ISPs. The issue with net neutrality isn't to try and force businesses like Neflix and Amazon to pay for the bandwidth they use, it's ending the practice of making non streaming customers of ISPs cross subsidize those that stream HD 24/7. Net neutrality operated as a tax on poorer people to support the viewing and gaming habits of the various streaming service users, and I'm glad it's been abolished.
ReplyDeleteAs for the blind, whatever. If Enty is being paid to let this dude post on here all good. The criticism of Netflix as a cash burner could be aimed at almost every other Silicon Valley business with justification. Twitter, Amazon, Facebook etc etc. They're sitting on stratospheric P/Es and the majority of them have never turned a profit and likely never will.
But this poster sometimes uses off color language, so you should ignore them as well.
Delete@Cail
ReplyDeleteThanks so much for that explanation. Netflix will survive through this brutal reorg, which is going to shock customers and investors alike. It isn't that unusual when one thinks of other examples of companies who had to change their models after offering a product that was too cheap for profitability. One could even compare it to the illegal drug trade which has sacrificed profitability for greater control of the market many, many times.
@Vesimede pretty sure it was published in the media years ago that Netflix worked out deal with carriers and does pay them to gain priority delivery access. The game of spending millions to try to get to exit has been the internet/technology industry's one trick pony for two decades and no surprise. Shame on the pony show leaving the retail investor holding the bag of what are usually poorly built companies and businesses in the first place. Never use the word "unicorn" in a sentence. Instant dorkiness.
ReplyDeleteWhat Netflix seem unable to grasp is their market segment, teenagers do not pay for Netflix that comes out of the bank of mum usually, dad rarely. Yet they spend crazy money making teen shows that they then have to cancel. Until they work out who forks out monthly they will continue to throw money away. Too much testosterone at the top I suspect.
ReplyDeleteYeah, but moms will pay a whole lot to keep the kids inside and quiet. Unlike our moms, who threw us out of the house to go play in the creek, or run all over town on our bikes, moms today want the kids at home, mesmerized by computer games or binging shows.
ReplyDeleteIt's a funny thing walking around a block where one knows at least 25 kids reside. Utter silence. Parents will pay a butt load to keep their kids away from the scary world outside.
Hedge Netflix stock is all the way down to 303.14 today down one percent. What did you short it at?I think we've got a looooooooooooooooooooooooooooooooooooooooong way to go and several hundred more BIs this year before you get your price. And I doubt anyone here is influenced by your anti-Netflix posts because mutual fund managers don't read here, even if Enty got interviewed by Politico, and most of the readers don't have the kind of money or influence you need to reach your goal. Too bad.
ReplyDeleteNetflix. The amount of money in bonds as to equity is 20 to 1. Bonds will be the fist to tank in the coming crash. Not sure how they will survive when not only Bonds, but all paper assets are dead.
ReplyDelete@sandyborook +1000000 (and the same with Musk's businesses)
ReplyDeleteThat's what the BL story was about - increasing the site's traffic to spread the word, lol.
And Hedge one more thing, I'd like to see if you want to attack some paper stock, go after Clear Channel and Entercom and the other radio media stocks who have absolutely fucked radio up in this country and even though their stocks are virtually worthless, they are still operating. I'd like to see them all completely tank.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHedgers run shit now. They are the power players who pay, so they get the say.
ReplyDelete*damn typos
Ha! Good point sandybrook!
ReplyDeleteWhat about Clear Channel which has bled users for 15 years?
Word is that Michael Savage, Rush Limbaugh and the like are heavily subsidized...which is why Rush could lose almost every advertiser and stay on the air.
@plot, who do they say subsidizes Limbaugh? I'd like to know more about that.
ReplyDeleteHere comes Comcast! LOL. Is the offering of the service on X1 just about broadband caps or is Netflix preparing customers for the future? How will the cord cutters react?
ReplyDelete@Doug
ReplyDeleteThe theory is The Heritage Foundation (funded by the Koches) subsidizes Rush and used to subsidize Glenn Beck, too.
It would explain why Rush, who has been losing listeners for ages, is still on the air. In fact, a massive subsidization by the Reich might be how the Clear Channel remains solvent at all.
The founder of Clear went to Davidson and was converted to Reich politics by a locally famous professor there.
At some point they'll just raise their monthly price to HBO levels of $15 or whatever it is. And the vast majority of people will pay.
ReplyDeleteThe moron who wrote this blind is obviously short the stock and desperate, NFLX is near all time high, like always.
ReplyDeletethere was a blind a few weeks ago about netflix burning through money, this seems like the follow up
ReplyDeletePlot CC is absolutely broke and cutting deals with the FCC to reduce their debt loads all their radio " stars" rake in around $20million each. One of these other companies is selling stations to smaller companies and firing hi priced employees because they declared bankruptcy (whichever company owns WLS radio in Chicago)all over the country.
ReplyDeleteThey could ask Elon Musk - right, Hedge?
ReplyDeleteIdk Hedge, maybe they've taken corporate finance for beginners and know they need to acquire a cash-heavy company with a shrinking market and offerings. (Rolled my eyes so hard they got stuck) You must think everyone here is a bunch of uneducated degenerates. Your revelations are always just you summarizing and dumbing down a public story and adding fake mystery questions to make it seem like a real blind.
ReplyDeleteActually the tech/web industry is really clueless. It's cute and fun to watch everyone get snowed.
ReplyDeleteReminder that Mr. Hedge has massive amounts invested in bets that certain companies will fail.
ReplyDeleteHe's looking to profit from others failures.
So much for that goody goody image.
I'd only take a bet like that if I knew which way the wind was blowing and for how long.
DeleteJust saiyan'
Yes, it's Netflix. Just did a big debt financing raise.
ReplyDelete@Hedge: They'll get through. Asia market entry plus a modest price increase and spend trim and they'll be fine.
They are almost pre-eminent for content creation and eyeballs at this point. Growth companies always suck up cash, especially in rapid expansion.
The real issue is when they hit the wall in a few years.
But there's plenty of fresh ground to plow yet.
As long as they can keep acquiring new customers at a healthy clip, they can keep the hamster wheel turning.
IMHO (I'm no analyst, let alone finance guy)
The bull market has a ways to run yet.
I certainly wouldn't bet against Netflix, Amazon or Google anytime soon.
At this point I only read Hedge blinds for @Sandybrook’s comments.
ReplyDeletePandora
ReplyDelete@Barstool Internet bandwidth is billed at the 95 percentile, meaning it's not the overall amount of bandwidth used in a month, but the rate per second:
ReplyDeletehttps://en.wikipedia.org/wiki/Burstable_billing
I work in the telecom industry, and we have ageements with our upstream provider at around $1/Mbps. For a simple math calculation, if the 95th percentile of your traffic for the month was 1Gbps, you would pay $1000 per month for the bandwidth costs.
Most residential customers do not have connections beyond 100Mbps, let alone 1Gbps or 10Gbps and most do not max them out for sustained periods of time. However it's the volume of customers that adds up to big bandwidth upstream costs. That and carrier grade switches are very, very expensive.
To alleviate this, Netflix partners with ISPs to alleviate heavy upstream bandwidth charges via their Open Connect program. Netflix places a box in your network that serves the local Netflix traffic. Facebook has a similar program. Hence, in larger metro areas, traffic would offload to the local Netflix box, not their servers back at the Netflix upstream datacenter.
https://openconnect.netflix.com/en/delivery-options/
That being said, most ISPs oversubscribe their switches. They count on customers not using the full capacity of the port. For a simple example, if you have a switch with an uplink capacity of 1Gbps and 24 ports at 100Mbps each, if everyone maxed out at once that switch is gonna choke. However, that situation rarely happens so they will load that switch up with 100Mps connections.
The biggest issue though is the lack of last mile competition. If the telecos had to open up the connection from their distribution to your home, you'd see prices drop, speeds increase, and no bandwidth caps.
That being said, the reason you don't see google, att, verizon, etc expanding consumer fiber like they used to is the math doesn't add up. The cost to build fiber varies between $2-4/ft (aerial vs buried) and with 5G coming, they're getting out of the game. This is why you're seeing att buy direct tv. They plan on selling you satellite tv and internet will be over your cell phone or to a wireless box in your home.
@Southernman: Asian market not going to do anything for Netflix. Shane McMahon lost his ass trying to start a streaming service in China. They all illegally download.
ReplyDelete@Count- you may be right. IDK.
ReplyDeleteIs Tidal even still around? I haven’t heard anything about them in ages.
ReplyDelete