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Netflix Might Soon Be Worth More Than Disney

Hollywood has been waiting to see when Netflix will downshift out of the fast lane — specifically, when it will stop burning tons of cash on an ever-expanding bonfire of original titles.

That day is not coming anytime soon. Netflix could soon be worth more than Disney, which once was rumored to be a suitor, as it rides investor excitement and continues to steamroll across the globe. Netflix’s market value was $138.3 billion versus Disney’s $150.6 billion as of Monday.

Netflix pulled in $11.7 billion in revenue in 2017, with a net margin of 4.8%. It could take its foot off the gas and focus on profits. But it’s still acting like a high-growth-mode start-up: This year, the company expects to spend up to $8 billion in content, and it’s projecting negative free cash flow of $4 billion.

That cash burn will continue “for several more years as our original content spend rapidly grows,” Netflix told investors in announcing its first-quarter 2018 results.

Traditional media companies wouldn’t be able to sell that kind of story. Netflix’s staggering price/earnings ratio of 254 for the last 12 months — versus, for example, Disney’s P/E ratio of 14.26 — gives off a whiff of the dot-com boom of the early 2000s.

For now, the money keeps churning through Netflix’s coffers. On Monday, the company announced that it priced $1.9 billion in debt notes (“junk bonds” in industry parlance) to fund rising spending on original TV shows and movies.

That’s on top of the $6.54 billion in long-term debt it held as of March 31, along with a whopping $17.9 billion in content-payment obligations, which are due over varying lengths of time. Meanwhile, Netflix had $2.6 billion in cash and equivalents on hand at the end of the first quarter.

Can Netflix sustain the kind of trajectory needed to pay off its mortgages? Plenty of investors seem to think so, but the phenomenon has some on Wall Street scratching their heads. “We are left with the continued displeasure of believing the stock is overvalued,” analyst Michael Nathanson wrote in an April 17 note, “but not seeing any legitimate fundamental reason for investors to sell the stock.”

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