Netflix Ups 2023 Free Cash Flow Estimate to $5 Billion, Citing Lower Content Spend Due to Hollywood Strikes
July 19, 2023
Netflix said it expects to spend less on content for the remainder of 2023 due in part to the ongoing strikes by Hollywood writers and actors. As a result, the streamer has upped its projected free cash flow for the year to at least $5 billion, from previous estimates of $3.5 billion. The streamer generated $1.3 billion in free cash in Q2.
Free cash flow (FCF) represents the cash that a company generates after accounting for monies to support operations and maintain its capital assets. FCF remains a singular focus on Wall Street as investors scrutinize what companies do with their excess cash, i.e. stock dividends, etc.
“Our updated expectation reflects lower cash content spend in 2023 than we originally anticipated due to timing of production starts and the ongoing WGA and SAG-AFTRA strikes,” wrote co-CEOs Ted Sarandos and Greg Peters and CFO Spence Neumann in a shareholder letter. “While this
may create some lumpiness in FCF from 2023 to 2024, we plan to deliver substantial positive FCF in 2024.”
The 42% uptick in projected free cash won’t sit well with striking writers and actors. The writers union has maintained that Netflix’s restructuring of episodic productions, number of season episodes and required writing teams, among other cost-cutting measures, have relegated TV writing to financially unsustainable gig work.
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At the same time, Netflix is projecting a 7.5% increase year-over-year in third quarter revenue to $8.52 billion, with operating income of $1.89 billion based on an operating margin of 22.2%.
“No doubt writers and actors will bring [free cash flow] up,” said Michael Pachter, media analyst with Wedbush Securities in Los Angeles. Pachter cautions, however, that Netflix remains an outlier among fellow members of the Alliance of Motion Picture and Television Producers, which is representing studios and streamers in labor talks with SAG-AFTRA.
Specifically, the analyst says many of AMPTP members’ direct-to-c0nsumer business operations are losing billions of dollars, supporting their fiscally conservative stance toward the unions’ demands.
“So, that’s the counter argument,” Pachter said.