In Depth

Netflix tops $100bn valuation - and overtakes Goldman Sachs

In Depth: the view from inside the ‘runaway train’ streaming service challenging Disney and Amazon

Netflix’s stock market value topped $100bn (£70.5bn) for the first time this week, catapulting it above Goldmans Sachs and other masters of the financial universe.

The online media company reached a market capitalisation of $108.31bn (£76.4bn) on Monday, surpassing banking giant Goldman Sachs’s $98.11bn (£69.21bn), according to the Financial Express

Netflix added 24 million subscribers in 2017 to reach a global total of 117.6 million, a rise driven by original programming and hit shows including Stranger Things and 13 Reasons Why. 

The US firm’s lofty position is a far cry from 1998, when it started out as an online DVD rental service whose main competition was Blockbuster, the BBC says.

“They’re a runaway train,” Edmund Lee, managing editor of tech news website Recode, told CNBC.

The highs

Netflix’s revenues rose by 32% year-on-year to $11.7bn (£8.25bn) in 2017, while net income tripled to $559m (£394.3m). The company’s fourth-quarter revenue of $3.29bn (£2.32bn), up almost 33% from the same period in 2016, was in line with Wall Street’s expectations, Fortune says.

Netflix bosses plans to spend $8bn (£5.64bn) on programming in 2018, and a further $2bn (£1.41bn) on marketing. They are also being joined by a new director, Rodolphe Belmer, the former CEO of Canal Plus Group, who is known for his focus on thought-provoking content, says Variety.

Netflix’s success has prompted Facebook, Apple and Amazon to try original programming, and is believed to have contributed to Disney’s decision to bid for Fox assets.

And the lows

Despite the plaudits, there are some areas of concern about Netflix: not least its negative cash flow.

“Netflix is now forecasting a free cash flow between negative $3bn and negative $4bn in 2018, after ending last year at negative $2bn,” Fortune says.

Critical analysts wonder when spending will level off.

“The company has stayed around break-even for most of its existence, but continues to need cash because of lavish spending on programming,” Bloomberg says.

Netflix wrote off $39m in the fourth quarter of 2017, for example, for unreleased programming including two House of Cards episodes that will not air due to the sexual harassment scandal around Kevin Spacey, the Financial Times reports.

What the future holds

Competition, too, is increasing.

“Disney is planning to launch new subscription streaming services starting later this year, and Hulu, the US internet video service that is jointly owned by Disney, Fox and Comcast, grew to 17 million subscribers last year,” the FT says.

So will Netflix resort to running adverts on its shows to please shareholders and boost profits? In short, no.

“It is a core differentiator and again we’re having great success on the commercial-free path,” Netflix chief executive Reed Hastings told journalists during a conference call, CNBC reports.

Netfix is growing at a record pace, adds The Motley Fool.

“Based on this round of results and Netflix’s first-quarter forecast, 2018 is set to be another blowout year,” the personal finance website says.


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