Netflix says it has solved its skeptics’ biggest complaint

Basking in victory.
Basking in victory.
Image: netflix the queens gambit
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Netflix cynics, look away: The streaming company declared it doesn’t need to borrow money anymore, rebutting what’s been a common criticism of the service for a decade.

Since 2011, Netflix has raised roughly $15 billion in debt (mostly by issuing junk bonds) to help fund its content production around the world. That led a group of analysts, reporters, and investors to question whether or not its business model was sustainable longterm—especially as streaming competition increased. In 2018, Yahoo Finance published a story titled, “Netflix is addicted to debt and investors should be terrified.”

But Netflix is saying they should chill out. In a fourth-quarter earnings letter to shareholders (pdf) today, the company wrote—literally in bold and italicized type—that its cash borrowing days are over. “We believe we no longer have a need to raise external financing for our day-to-day operations,” it said.

The company also said it expects to break even in free cash flow in 2021 after years of negative cash flow. Netflix shares were up more than 12% in after-hours trading on the news.

Netflix’s assertion came as part of a largely solid fourth quarter earnings report. It announced 8.5 million new subscribers (vs. 6 million the company expected), putting the service’s global tally of members over the 200 million mark. It also met its projected revenue of $6.6 billion in the quarter. Netflix had a number of global hits during the quarter, including The Queen’s Gambit, Bridgerton, and, most recently, the French heist series Lupin.

The report capped off a record-breaking year for the company, thanks to the Covid-19 pandemic. Its subscriber base skyrocketed as consumers around the world stayed indoors and watched stuff on their screens. Most of Netflix’s growth in recent months has come outside the US: It added 2 million new subscribers in Asia in the most recent quarter, compared to just 860,000 in the US and Canada combined. Nearly 85% of its subscriber additions in 2020 came from outside the US.

Some analysts were worried that a $1 price hike in the US in October would stunt its momentum, but that has not yet materialized. Netflix forecasted another 6 million new subscribers for the first quarter of 2021. But it’s clear the unprecedented growth that occurred in the early days of the pandemic has slowed.

Netflix plans to release at least one new movie every week this year, on top of its normal schedule of TV series, documentaries, and specials. The company’s content production was not as impacted by the pandemic as that of other Hollywood studios, which had to hit pause on filming new content for several months, and have only recently resumed with new protocols in place. But Netflix was able to resume producing many new shows and movies around the world in late spring of 2020.

The company still faces a few obvious headwinds: namely stagnant growth in the US and an increasingly crowded streaming landscape, now filled with threats from Disney, WarnerMedia, NBCUniversal, and others. Once a vaccine allows consumers to enjoy more live, in-person experiences again (like movie theaters and sporting events), Netflix could suffer.

But it has now answered at least one of the arguments against its longterm viability—and there aren’t a whole lot of others left.