Media | United States
Equity Value (Δ)
Source: Bloomberg end of day market data; not adjusted for dividends (August 3, 2016).
Netflix (“Netflix”) is the world’s leading Internet television network with over 95 million members in over 190 countries. The company operates through three segments: Domestic Streaming, International Streaming and Domestic DVD.
WSD Capital Management announced its short position in Netflix on August 4, 2016. We believe Netflix’s bet-the-company content strategy and subscriber churn/loyalty will be stress tested as competition continues to intensify and the inevitability of substantially higher subscription fees is factored in.
While the company has a good base for growth due to its first-mover advantage, its current business model burns alarming amounts of cash, which is neither sustainable nor a path to long-term profitability. In April 2017, Netflix disclosed that its off-balance sheet streaming content obligations have risen to $15.3 billion, of which $6.2 billion are due in 2017.
We expect that the company’s management will continue to double-down on a host of very aggressive accounting assumptions that seek to gloss over the deteriorating business economics and flatter its weakening profitability as competitive forces and insider selling continues to intensify.