[whatok]

Netflix would not remotely resemble its current form and likely would have been acquired years ago if they did not pivot to their own content. Switching to their own content required and still requires huge amounts of money; est. 17bn last year[0]. Additionally, the gross profit number is a flawed number for many reasons; try looking at operating or net income or anything farther down the income statement from basic revenue. Netflix has no option but to finance content spend with debt as they do not generate enough FCF to cover content spend and will quickly fall behind competitors if they don't.

[0] https://www.pcmag.com/news/netflix-will-probably-spend-19-bi...

[tw04]

>Netflix would not remotely resemble its current form and likely would have been acquired years ago if they did not pivot to their own content.

You can't acquire a private company unless they're willing to sell.

>Switching to their own content required and still requires huge amounts of money; est. 17bn last year[0].

I don't follow your point? Private companies can take a loan just as easily as public. If they were unable to attain the financing they wanted, they'd still have plenty of their own content, just not as much.

>Additionally, the gross profit number is a flawed number for many reasons; try looking at operating or net income or anything farther down the income statement from basic revenue. Netflix has no option but to finance content spend with debt as they do not generate enough FCF to cover content spend and will quickly fall behind competitors if they don't.

I'd suggest you do the same. Their cash balance increased from $5 billion to $8 billion last year. They took out "debt" to finance their movies because money is cheap right now. Nothing they've done required them being a public company, and nothing you've shown makes me believe they couldn't be in exactly the same position they currently are as a private company. They didn't even start borrowing money of significance until 2012, I still don't believe for a second they'd be "bankrupt" as a a private company.

https://stockanalysis.com/stocks/nflx/financials/balance-she...

[whatok]

> I don't follow your point? Private companies can take a loan just as easily as public. If they were unable to attain the financing they wanted, they'd still have plenty of their own content, just not as much.

Private companies face a higher cost of capital than equivalent public companies and are unable to borrow as much money as public companies are able to. This is basic finance 101 stuff. Without debt financing, they would not have been able to begin their pivot when they needed to. Netflix is able to borrow at much lower rates than a company with the same financials solely because they are a large public company. Google "equity cushion" if you're unfamiliar with the term.

> I'd suggest you do the same. Their cash balance increased from $5 billion to $8 billion last year. They took out "debt" to finance their movies because money is cheap right now. Nothing they've done required them being a public company, and nothing you've shown makes me believe they couldn't be in exactly the same position they currently are as a private company.

Yes, Netflix is doing much better financially over the past few years and especially in the past year given the pandemic. I don't see how their cash balance is relevant in the face of content spend 2-3x that much. The initial contention was over content spend and a misleading gross profit number.

>They didn't even start borrowing money of significance until 2012, I still don't believe for a second they'd be "bankrupt" as a a private company.

They started borrowing when they needed to pivot to their own content, had to do so at pretty high rates, and luckily succeeded in their pivot.

Throughout this, I don't see any acknowledgement of where streaming was back then and how competitive the space has become since then. Netflix needs to spend on content or it will get left behind. A smaller Netflix offers no competitive edge right now and a smaller Netflix years ago would have been held hostage by content owners while being unable to have any real control over sub pricing; see poorly handled rate increases years ago.

[tw04]

>Private companies face a higher cost of capital than equivalent public companies and are unable to borrow as much money as public companies are able to. This is basic finance 101 stuff. Without debt financing, they would not have been able to begin their pivot when they needed to. Netflix is able to borrow at much lower rates than a company with the same financials solely because they are a large public company. Google "equity cushion" if you're unfamiliar with the term.

I guess I took a different finance 101 than you did - it was at an accredited university though, so I'm fairly certain they weren't making things up as we went. I've literally never heard of a public company being able to borrow more because they were public. Quite the opposite actually, as a private company with a solid financial track record isn't subject to the whims of shareholders and short-term quarterly-returns based internal investment.

Now if you're pets.com that is burning through cash like it's water in the hopes of making money 20 years down the road... that's a different story. That's also not Netflix.

[jfengel]

Private companies face a higher cost of capital than equivalent public companies

Why is that? (Sorry, I never took finance 101.) Is it because public companies can more easily put up corporate ownership as collateral for the loan? Or because of the extra scrutiny they get from the SEC?

[Mindwipe]

> Is it because public companies can more easily put up corporate ownership as collateral for the loan?

It's because junk debt bonds are much cheaper interest rate wise for rapidly growing public companies as the growth means they are less risky.