Netflix’s share price gained more than 5 percent on Wednesday after the company beat expectations in terms of its global subscriber growth. Netflix added nearly 7 million subscribers in the three months ending September 30, restoring shareholders’ faith in the streaming market leader that hat been shattered by disappointing growth in the past quarter. To Netflix, subscriber growth is what iPhone sales are to Apple: the one metric that Wall Street tends to focus on, because it’s well-known that the company’s strategy of spending billions of dollars on content will only work if its subscriber base continues to grow.
Over the past twelve months, Netflix
spent more than $10 billion in cash on streaming content. Add to that $4.6 billion in content payments due within 12 months of September 30 and another $3.6 billion due in more than a year, and it becomes clear why the company’s shareholders are itching for new subscribers.
The beauty of Netflix’s gamble on making its own content is that the cost of producing a show is the same regardless of whether 10, 100 or 500 million people are watching it. Once the company reaches a certain number of paying subscribers, the business will carry itself nicely. For now, however, it doesn’t: Netflix burned through $2.2 billion in cash over the past 12 months, which is why its shareholders will continue to keep a keen eye on the company’s subscriber growth.