While the numbers are out Netflix, loses nine hundred, and seventy thousand subscribers compared to their forecasts of losing two million. So even though they still lost subscribers, this was considered a beat which is good news. Good news for investors and investors are responding as this
being good news. It's not amazing, they're still losing subscribers so it wasn't like they swung this back into the positive and gained a million subscribers that would have been amazing, but they're not losing quite as many. And this wasn't disastrous to the point where they lost three to five million Ian, like some analysts are saying. So right now, the stock today was up, 5.6% after hours, it's currently up 7.7 percent as investors are trying to digest
this news. So, having said that, I have the official earnings report, pulled up on my screen, and I want to go through this with you and give you my instant reaction and fresh take on this. So having said that let's go ahead and Jump Right In before we start just a quick shout out, this video is sponsored by FTX u.s. if you haven't already use the pin comment links and The brokerage account its free.
You can you can open it up and use the code Carlson to get $10 when you do a hundred dollar trade now. Let's go ahead and jump right into this. July 19, 20 22, that's today just an hour ago. Fellow shareholders Q2 is better than expected on membership growth. Used a term growth lightly there they lost subscribers but it's their membership growth and foreign exchange was worse than expected stronger.
US dollar. This is something that every company including Microsoft has to deal with resulting in nine percent Revenue growth. %, constant currency, constant, currency for those, not aware means what the growth would have been had. You - doubt any foreign exchange
issues. So if there wasn't the dollar going up and down in value, then the 13% constant currency means they would have had 13 percent Revenue growth, but since there was foreign exchange changes 9%, was what their growth netted out to our Challenge and opportunity is to accelerate, our Revenue membership growth by continuing to improve our product. Content and marketing, as we've done for the last 25 years.
And to better monetize, our big audience, we're in a position of strength, given our 30 billion plus in Revenue. Six billion in operating profit last year, growing free, cash flow, and strong balance. Sheet are summary. Results are forecasted and forecasts are below, so they highlight that they have 30 billion in Revenue. Six billion in operating profit last year, growing free cash flow, strong balance sheet, which I agree with all of that. For the most part. Now we have a summary of
everything right here. Let's go ahead and just take a look at this for a minute, Global screaming paid members, they have the forecast here, 220. So last quarter they ended with 220 million point 600 so 220 million, six hundred and seventy thousand is what they ended this quarter with last quarter. Before that they had 221 million six, hundred forty thousand. So they lost the nine hundred and seventy thousand Ivers. That's right there.
This minus nine point, nine seven and they're expecting to gain next quarter. It looks like a million subscribers so that's low. That is low. They are obviously struggling to grow. This is an amazing. They're not like, oh, now we're expected to grow four million, but I'm hoping that Netflix has learned their lesson and they're doing things the right way, where they did it like this quarter, they under promised
they'd over-delivered. They said they're going to Lose two million and they lost less than 1 million. So if they say they're going to gain 1 million, I hope that that's a low estimate and they really gain 1.8 million. It's better than expected. That's what I would hope from Netflix. I really, really hope they learn their lesson and they're giving themselves a little bit of a margin of safety with these forecasts.
But right now that is a 1 million subscriber gain forecast, which is just slow, this is slow going into next quarter. Hopefully it picks up the quarter afterwards, when we get To the the winter seasons when people are home with their family, people tend to do more subscriber. They do more streaming, those type of activities, watching movies, but this quarter, I believe typically is a bigger one for them. This upcoming 1, so 1 million is very soft guidance.
But again, my suspicion is it's very similar to this quarter. They are under promising over-delivering, that's what they're trying to do. Now, let's go ahead and look at their cute to results. What they say Revenue, gained nine percent 13%, excluding the 339 million foreign exchange, currency impact, driven, by six percent and 2 percent increases in paid membership and arm average revenue per member respectively, excluding the impact of Foreign Exchange arm
rows 7% year-over-year. So on a per member basis, they're still making more money in the asia-pacific region region, they grew Revenue by Only 3%, that's fast Revenue growth, 23%, I think this is one of their best regions right now where they're still growing. Let's take a look here at over 900 million of Revenue. Apex approaching the size of our Latin America business. We added 1.1 million members in the region, verse 1 million last Q2. So they added 1.1 million in Asia Pacific.
This is likely kind of saving Netflix. This this area they say due to the impact from our price. In India last December, as well as a plan mix which was parked partially offset by higher arm and Korea and Australia. So they actually had Revenue go down because of their price. Decrease in India, they're lowering prices to be competitive in India, because in India, it's highly competitive.
They're everyone's trying to get their streaming service in and usually they charge a couple bucks a month. So they lowered prices to be more competitive but they say excluding India, a pack arm grew four percent year-over-year on a constant current He bases. We have Europe revenue and arm increased 13% six percent year over year respectively while
paid net ads. Ditions totaled - 800,000 verse plus two hundred thousand a year ago so they lost a lot in the European. I believe that's the American European market revenue and lot of Latin America grew 19 percent year-over-year excluding FX and surpassed 1 billion. It's interesting that the The average revenue per user is increasing while the paid net ads are going down. So it's just means they have turn.
They have a lot of people paying more and they like the service they're continuing to watch it. Then they have some light users on the probably the smaller plans, just saying, you know, I don't need it for the next couple of months, I'll sign up later when they have some shows that interest me. So they have turned every one of these streaming services, every one of them deal with turn Apple deals with a lot of turn. They're turning users all the time with Apple.
B plus all these companies are doing this. So moving on, they say that you can arm and revenue each increased ten percent year-over-year, excluding the impact of FX paid. Net ads were - 1.3 million verse point, four million. So they lost subscribers in both Europe. They lost subscribers in the u.s. a lot of subscribers in the u.s. they gain them in Asia Pacific. So this is probably their guidance saying we're going to lose about 2 million.
It was these areas but they probably didn't realize. Why's that asia-pacific Korea. These areas would bail them out and gain. Gain a million subscribers. Retention improved over the course of the quarter, and while churn remains slightly elevated, it is now back to ne'er pre-priced change levels. So, on their earnings report, which I haven't listened to their earnings call.
Last one, they said, typically, when we raise prices, it immediately has an effect of causing turn to go up as people are frustrated prices, go up, but then it goes back down to Normal levels of our time, over a quarter or two, it goes back down, and the price increases are very accretive overall to revenue. Meaning the amount of money they make from the people that stay in Netflix, compared to the amount of people they lose. Overall, they gained a lot of
Revenue in the process. So even though it looks bad, because they lose some subscribers to price increases overall, the business pulls in more Revenue, We adjusted our cost structure for a current rate of Revenue growth. This results in approximately 70 million of severance costs and an 80 million non-cash impairment of certain. Real estate lease is primarily related to right-sizing or office footprint. No, surprise Netflix has been doing layoffs in and firing people.
They have an incredibly generous compensation severance package. When, when you get laid off at Netflix, you get paid for a long time, full salary with benefits, they really try to Treat their employees. Well, so when they leave, they can leave any time and be happy and they can transition to a new job. But anyways, that's the 70 million dollars. They're excluding these items
totaling 150 million. The FX impact of the stronger dollar since the last April report operating profit and operating margins were slightly ahead of our guidance forecast earnings per share. Nobody ever pays attention to the earnings per share of debt Flex even though they've been steadily beating it every quarter every year they've been crushing their earnings per share, Projections growing their EPS, but investors don't really care about it. They care about the subscriber numbers.
EBS, have three $23.20 compared 22.97 a year ago, exceeded our guidance of three dollars due to a 305 million non-cash unrealized gain from FX remeasurement on our Euro denominated debt, which is recognized below the net income. All right, so they beat their own, internal earnings report. Now I think when I look at this and compare let's see.
Let's see what the street hat on this compare this EPS forecast earnings per share, three dollars and twenty cents versus the streets, two dollars and Ninety Four Cents. So they they beat their EPS by a wide margin, their revenue. Seven point nine seven billion versus eight point three five billion which the analysts expected the reason they didn't beat that was the 300 million from foreign exchange impacts.
That's the reason that I think Microsoft might have a tough time with their Next report that foreign exchange is going to crush them with the amount of globally, Diversified business day. Do and then, of course the global paid. Net ads 970,000 versus the 22 million so across the board, their earnings report in terms of eps. So it's actually good. There are subscribers came in better than expected their
forecasts. We read that they're going to be forecasting 1 million, but let's go ahead and let them explain this. As a reminder, the quarterly guidance, we provide is our actual internal forecast at the time we report. Sure that that's what they officially say. I'm hoping they give themselves a little wiggle room. I hope 1 million forecast is on the low side and it really comes out better.
As always we strive for accuracy, although the current uncertain macroeconomic environment leads to less than normal visibility. The US dollar continues to strengthen meaningfully against most currencies at a historic Pace with the Euro recently falling below.
The US dollar for the first time in two decades, a significant headwind for almost National us companies, we have high exposure to the unprecedented appreciation and USD because nearly 60 percent of our Revenue comes from outside of the US and Swings in FX have large flow through to our operating profit as most other expenses are in USD and don't benefit from the
stronger USD. So they earn a lot of money outside of the US. They bring that money in and get hurt by the FX and all their expenses. All the things to run the business, all their content creation is mostly for the most part.
Art done with in the US. That's a very unfavorable situation to be in for Netflix for any other company that has a lot of expenses in the US like Microsoft that has a lot of Revenue outside of the US. Our Q3 Revenue growth forecast of 5% translates into 12 percent year-over-year, Revenue growth on a constant currency basis, that's still decent Revenue. Growth 12%. They say, similarly, excluding the impact of currency operating profits should grow by growth.
Should be minus 3%, a year versus our forecast decline of 29% and operating, margin would be 20% versus our forecast of 16 percent. As we have written in the past over the medium term, Intend to continue to adjust our business as appropriate, given the relative strength of USD to protect our operating margins and try to avoid immediate action. That would, that we believe would be detrimental to the business.
So they need to rejigger and reposition the business because of the for an experiment, foreign exchange currency issues. We forecast paid net adds a Q3 some next quarter of plus 1 million versus 4.4 million in the year according order ago. This is not great as a Netflix shareholder forecasting, 1 million gain verse 4 million last year. This is not the original thesis. When I originally invested in Netflix, I thought they would continue to grow at least 34 million a quarter, nothing
crazy. I wasn't expecting covid like growth, but at least a couple million a quarter because there's hundreds of millions of families out there. They're forecasting 1 million subscriber gain next quarter. It's just slow. We continue to expect full year. To operating margin of 19, to 20 percent. Excluding the unanticipated, 150 million of restructuring costs, and Q2 noted above, and the material movement, and FX from January 2020 to, as our guidance, was set based on FX at
the time. So they're basically using the foreign exchange as an excuse for not hitting some of their targets here, which I think is a valid excuse. We seen Microsoft lower their guidance for the very same
reason. Lots of companies, this earnings season, I think are going to get hurt by that content, marketing product last quarter, we discussed are slowing Revenue growth, which we believe is result of the connected TV adoption account, sharing competition, and macro factors as sluggish economic growth and the impacts of the war in Ukraine. We've now had more time to understand these issues, as well as how to best address them.
First, and foremost, we need to continue to improve all aspects of Netflix. This focus on improving. Our core service has served Well over the past 25 years and remains our North Star to drive, continuous growth. It's why we strive for an Ever better content marketing product experience. Also a pure play streaming business where unencumbered by Legacy revenue streams.
This Freedom means that we can offer big movies, direct to Netflix without the need for extended or exclusive theatrical windows and let members binge watch TV if they want without having to wait for a new episode to drop each week. Eek I think this is a mistake. I think Netflix needs to ditch this one. They have key series key series. Like stranger things. It should be like the NBA Playoffs every week. You just have this massive two-hour episode to look forward to a stranger things.
It gives time for YouTubers to make videos and fairies and read it to post about it and discuss episodes and for cooler, you know, the cooler talk, right? You don't have that one, you just release it on a day. I think it just, it makes it tough for Netflix to keep to keep people subscribed when they release all their key content in one go in one weekend.
So this is something that I think strategically Netflix is making mistake on. I wish they dragged out as an investor their their key series longer than they do from a user experience. I do like that, they just release it all at once, but from an investment side, I think they should take the strategy of Disney, some of their key series. I think they should drag out longer this focus on choice and control for members influences. All Ex of our strategy creating what?
We believe to be a significant long-term business Advantage. Our content offering is designed to satisfy a broad range of member taste and providing an unmatched variety on quality titles are Q2 slate is emblematic of this approach. Headlines by season, for stranger things, which returned to tremendous fan reception and was a smash hit by all measures including an outstanding drama Emmy, nomination along with Ozark and Squid game, yada yada. They're going to brag a little
bit about their series. Stranger things season for generated 1.3 billion hours viewed making it our biggest season of English TV ever. They always have to say English TV. After squid game crushed every single record season, for also reignited interest in past episodes with season 1 through 3, experiencing a greater than fivefold. Increase in viewing in the months after the release of season four. So a lot of people are like, wow, this new season looks
really good. I'm going to start it from the beginning or people want to watch it over from the beginning because it's been such a long Ang series season for stranger things. Also showcase the effectiveness of our marketing strategy and driving conversions around our titles. When we deliver shows and movies that members are talking about in large numbers, we can influence pop culture, build passion for Netflix and create an experience that is differentiated and difficult to
replicate. For example, the show. Catapulted the 1985 song Running up that hill. I've heard that so many times on the radio everywhere to the top of the music charts. Metallica. Also enjoyed a returned to the charts in the US and UK with their 1986 song, Master of Puppets, after being featured on the new season of stranger things. The cumulative, Twitter volume for stranger things, continues to outpace, both, Obi-Wan Kenobi, and top gun Maverick.
Highlights the big conversation around the titles and reinforcing that are binge versus one week at a time. Strategy drives. A lot of water cooler conversations, so they are directly is like they haven't read this. Events. It's like they directly knew that I was going to bring this up. I literally have not read this in advance. They have good argument here. I'm just saying Disney grew 70 like 60 million subscribers with one TV show with just just the Mandalorian and they did it by
releasing it once a week. So people really paid for three months of content to watch one show. Netflix could do that. I think if they have some series having that Weekly release, I think is something some people actually prefer when Breaking Bad came out, those weekly releases on television that people waited for every week week. With something that I think a lot of people had fun doing but they are going a different way.
They have their reasons, they have their data, they're saying that they can still generate the water cooler conversations with their binge, their binge release and this is something just on a side note, my wife completely disagrees with me. She loves binge-watching shows. So the fact that Netflix is one of the only places where they just drop an entire season, she much prefers that to just see what happens in a series.
Watch it in a weekend, then dragging it on week, after week, she hates the week after week things. So we have discussions about this all the time. This is a different graph than what they normally bring up. What Netflix normally brings up is a graph showing their year-over-year subscriber growth and they ditch that one. It's no longer in their earnings reports for good reason. It doesn't look good. This in though, looks different. What do we have here? They're comparing it to the
competition. Now now the competition isn't sleep, it's not Facebook. The competition is Obi-Wan Kenobi and top gun Maverick, cumulative, Twitter volume. This is like a buzz rating, communitive engagement and millions and days from Premier stranger things. Trending up by the metrics are using to measure this. The engagement metrics, stranger things as crushing.
Obi-Wan, Kenobi and top gun Maverick, which I haven't seen all of Obi-Wan Kenobi. But top gun Maverick was fantastic in my opinion, so that's good to see that their series are our buzzworthy still. We also delivered a wide variety of other English language series and Q2 including season, 3 of Umbrella Academy Lincoln Lawyer, they have a lot of good shows.
This is one point that I made, and I made this on Twitter, Netflix does have a lot of good shows if you watch The Haunting of Hill, House The Witcher stranger things, Ozark that, what's the chest one that came out with, I can't remember the name of it. They had a lot of really good seasons of shows, but I think that people just burn through
them so fast. You watch them in one week and then you're on to the next show and Netflix does have a lot of low quality shows, the end up thinking that Netflix has more low quality shows than high quality, and that's an issue. I think they have. They say that they're building up their non-english programming something that they've been working on that. I think they're, well, ahead of
competition. And we want Netflix be relevant to audiences all over the globe and our local language titles are differentiator for us. We focus first on telling authentic stories for local impact, but we see the great stories that can travel everywhere. Another example of this, in the market heart, I don't know these series because they're not, you know, non us ones while we have room to improve that's odd. They're taking a little bit of a
humble approach. Their Netflix is usually like we got this when the stock price is high, they say We're very pleased with how far we've come and providing so much satisfaction and enjoyment to our members, for instance, in the US which is one of the most competitive markets in the world. We drew more TV viewing time than any other Outlet. During the 2021 2022 TV season. See chart below nearly matching the combined.
Total of the two most watch broadcast networks and as Nelson will announced on Thursday. Our share of u.s. TV viewing reached, an all-time high of 7.7% And that's an all-time high, but they still have a long ways to go. Netflix needs to get to, like 30% demonstrating our ability, to grow our engagement share as we continue to improve our
service, share of u.s. TV viewing Netflix on top, CBS NBC ABC Fox, then way down there, Disney plus Prime video and Hulu. I'm very bullish on Prime video. By the way, I look at the series are coming out with the boys, the terminal list. All these new series are coming out with that are very popular. Are there doing a lot of effort in it with their Lord of the Rings? When I think they'll do, they'll do really well, but Netflix is
clearly. In terms of viewing, no one's even close people on average view Netflix for over two hours. A day, two hours a day, getting that much attention in one day. Every day for a service is incredible since our launch of a small selection of license mobile games last November. All right, so they're getting in the mobile games here. I don't care as much about this. Be honest with you. I don't care as much about the games on Netflix, I know there, but they're doing a big push in it.
Don't see this as anything. It's not the story that I invested in for Netflix. It is their entertainment video television, documentary comedy entertainment service near term focus in the near-term. Our key priorities to re-accelerate revenue growth is to evolve and improve our monetization in the early days of streaming. We kept our pricing very simple with just one plane level 2014. We introduced three price tears to better segment. Demand going forward. We will focus on better.
Ization. They're getting into ads are there they're laying the framework of it better. Monetization usage. Monetizing usage, through both continued optimization of our pricing and tear structures as well as the addition of new lower-priced ad-supported tears. So they're not going to make pop-up ads and video ads and you're paid for tear that you currently have. They're building a new lower-priced ad-supported tear. Advertising are lower-priced advertising.
Support offering will complete will complement. Our existing plans which will remain ad-free they have to clarify that because there's lots of people that spread nonsense on Twitter and social media saying Netflix is going to add ads to all of their tears, their just causing people to hate Netflix for something. You're not even doing our Global. A RM has grown out of five percent compound annual rate from 2013 to 2020 one.
So, it makes sense. Now to give consumers Is a choice for a lower price option with advertisements. If they desire, we recently announced Microsoft as our technology and sales partner, and we're targeting to launch this tear around the early part of 2023. That's right. Where I thought they would very happy to see them partner with Microsoft, I think a great partner, one of my massive investments in the passive
income portfolio. They say they are investing heavily to expand their multi-billion and advertisement business in the premium television video. And we are thrilled to be working with such a strong Global partner. We're excited by the opportunity, given the combination of are very engaged audience and high quality content which we think will attract premium cpms for brand advertisements. It absolutely will. There's brands that don't just
want to advertise anywhere. They want to advertise in a select type of Show on Netflix. For example, Nike Peloton, those type of Brands won't just want to advertise on any Show on Netflix, they're going to want to advertise on the Shows that they believe will be the type of people most likely to buy their product that will result in much higher cpms if they can get it right. If they have the right ad partner, Microsoft is the right ad partner.
In my opinion, Microsoft has over 10 billion dollars in ads. They own LinkedIn. They know ads, they are very good at them and I think they'll be able to help Netflix accomplished icp-ms, that they will likely make more money based on their advertising viewers. That watch a couple hours a day. With ads, then they will with the premium tears that you pay for the advertising. Viewers will likely make Netflix more money.
Will likely start in a handful of markets, where advertising spend is significant like most of our new initiative. Our intention is to roll it out, listen and learn and iterate
quickly to improve the offering. So our advertising business in a few years will likely look quite different than what it looks like than one then, like one today over time, our hope is to create a better than linear TV. Advertisement model, that's more seamless and relevant for consumers and more effective for our advertising Partners while We'll take some time to grow Our member base for the ad tear and the associated ad revenues over
the long run. We think advertising can enable substantial incremental, membership through lower prices and profit growth through ad revenues, one of the common concerns here is Joseph. What happens if it cannibalizes their normal subscribers, I might cancel my premium, I won't but some people might say I might cancel my premium membership and move to the free or lower priced. Add tear one. You will be paying Netflix more
money. By virtue of you being on the ad Care by watching Those ads, Netflix probably will make more money than they would have. Had you just stayed on the paid tier page sharing? This is an update that I really am interested in. We're in the early stages of working to monetize the one hundred plus million households that are currently enjoying but not directly paying for Netflix. We know this will be a change for our members as such.
We have launched two different approaches in Latin America to learn more. Our goal is to find an easy to use. Paid sharing offering that Believe works for our members and our business that we can roll out in 2023. We're encouraged by our early learnings and the ability to convert consumers to pay cheering in Latin America. People are throwing a fit about this. So this I think is a potential risk factor that could raise turn we'll see.
But if Netflix really does continue to create content, like stranger things and other big franchises. The people want to see people will pay for it and Netflix does need to make money. Lots of people just share accounts and they're watching Netflix for free for a long. Longtime simplicity at, Netflix, Focus remains very important to us. These initiatives paid sharing and advertising do introduce some additional complexity. But our approach has always been to keep our business model as
simple as possible. Within the context of our growth objectives in this vein. These initiatives are similar to expanding and two Originals launching our service, across the world and building our own Studios, Each of which also increased complexity, but our natural extensions into the enhanced of intended to enhance our existing business.
All right? That is, is I think that's basically it. So, let's go ahead and look at the financials here, but that's a bit of the, the business side of Netflix, my reaction to. This is as a shareholder right now, I was, I bought Netflix, three times as it traded down further and further. And it got to a point where I thought, you know what, I just want to see if they can turn this around if they can right the ship and start to grow
overall. I don't need Netflix to grow every single quarter, I need them to grow on a year. Basis and show that their business model really, has opportunity to grow free cash flows, because when I'm looking at this, let me bring this up on Quantum insights here. This is website available to all patreon members. This shows the the actual free cash flow of the business.
I can bring up this chart right here as you can see Netflix is free cash flow for years with always - this is a big pain point for the company they invested in content heavily because they knew competition was coming. Now it's time to actually become free cash, flow positive, If they've had a couple quarters of it but now they really need to make this free cash flow positive every quarter at least on a yearly basis. That's right.
They're going to highlight hair. My prediction is they're going to struggle with this more than expected because of the FX problems. Free cash flow, which is a cash loan capital structure. Net cash generated by operating activities and Q2 was plus 103 million versus - 64 million in the prior year. Free cash flow in this quarter total. 13 million Not a lot that's a minuscule amount compared to minus 175 million in Q2 of 2021. But it did swing from heavily in the - at least to the positive.
So I guess it's going in the right direction but this certainly isn't a lot of free cash flow. Again, we look at this on a full year basis. Not quarter to quarter cash declined, 190 million sequentially primarily due to our next games acquisition. So they bought next games for 70 million and the FX impact of 145 million As we discussed previously, we are now self funding for the full year of 2022. We expect free cash flow to be approximately plus 1 billion.
They're going to generate over a billion dollars in free cash flow in 2022. Despite FX issues plus or minus a few hundred million dollars, assuming no material further movements and FX. So based on FX right now is going to be plus 1 billion. We expect annual positive, free cash flow, going forward with substantial growth and free cash flow 2023. 20:22 due to our increasing Revenue solid profitability and the successful multi-year evolution of our
content model. We're now more than a decade into Transforming Our service from a license second run content to mostly Netflix originals. Including more than five years into building our own internal Studio produce this, the majority of our original titles. So yeah, they're internal Studios, do produce the majority of their titles. Now sixteen percent of our net content assets on our Balance sheet are Netflix produce. We're now through the most cash intensive part of that
transition. As a result, our cache content spend a Content amortization expense ratio peaked at 1.6, along with Peak - free cash flow of 3.3 billion in 2019. Anna's expected to be about 1.2 1.3 times 2022. It sounds very complicated. Let me explain this for you. This is like the biggest problem with Netflix. The biggest issue that people highlight, some people actually say, This is kind of shady of Netflix right?
We look at the company here. We have this chart right here which is the easy bit of the company and it just looks amazing. Netflix has great Revenue that grows over time right? Then they have the ibadah that grows over time. This nice, gradual chart, but what they do is they capitalized their content costs and then the amateur eyes them. So the amortize, the expense of it, over the lifetime of the content.
So even though they have this ibadah, your actual cash flow looks completely different, right? It's in the negative. That's why on quatrain I like it. So you can see all of this. So you can get a more full picture and the reason why is because they're spending more on content in expenses every single year. And that's what this graph shows here, cache contents pain to content amortization ratio. So this is how much they're spending in new content compared
to how much is previous content. Spend that their their expensing every year. So if they, if they paid for a new Series 3 years ago, they don't actually start to expense it until it's actually released on Netflix and people have criticized Netflix for this but it's the exact same thing that Amazon does with Amazon. Prime. They amateur eyes it based on the lifetime of the content they say right here between 2014 and 2019. The build-out of originals and self-produced.
Content was when this ratio kept growing more and more making the discrepancy between ibadah and cash, flows, greater and greater, we can see that right? With these, Has two graphs, the ibadah discrepancy since 2014 to 2018 and then the free cash flow from 2014 to 2019. It's a huge discrepancy. They say that that was from 2014 to 2019 on this chart now it's starting to go go back the other way.
It's starting to reverse. The covid-19, production slowdowns the shutdown's made this artificially go down, but you could see even without covid. This is naturally coming down over I'm as their amateur Rising less ratio of produce contents. So, this is a good thing. This just means they're moving in the right direction, their cash flow should improve over time.
Gross debt at the quarter end amounted to a fourteen point three billion within our targeted range of 10 to 15 billion with cash of 5.8 billion. Net debt totaled, eight point five billion. Not a lot of debt it's one point three times. Last 12 months ibadah that I like to invest in companies that are within a range of three times debt to ibadah. Not beyond that, typically not beyond that. Our capital structure policy remains unchanged.
The first priority of our cash is to reinvest in our Core Business and to fund new growth opportunities. Like gaming, followed by selective Acquisitions. We target maintaining a minimum cash equivalent to roughly two months of Revenue example about 5.3 billion based on cue to revenue after meeting those needs. Our intent is to return excess cash to shareholders through
share repurchases. So Netflix is actually going to, they're going to have extra cash, they're going to do share repurchases, which means that this graph right here, their shares outstanding. It'll actually not just flatten out, but you'll see this go down quarter over quarter, which makes it. So you have more Equity in the company for a long time. They've been doing, they've been doing share dilution, which is a - now they're going to be doing
share Buybacks in summary. We accelerating our Revenue. Growth is a big challenge, but we've been through hard times before. We built this company to be flexible and adaptable, and this will be great test for us and our high performance culture. We're fortunate to be in a position of strength, as a leader in the streaming entertainment, by all metrics Revenue engagement subscribers, profit and free cash flow. We're confident and optimistic.
Mistake about the future. That is a report that's me going through it for the first time. So I hope you enjoyed it. My takeaway from this I like it. I know that this wasn't like an amazing report. They didn't just Dazzle Everyone. By gaining two million subscribers when they're projected to lose 2 million,
they still lost subscribers. And the US and in Europe, primarily primarily, but they gain subscribers in, Asia Pacific. They're coming out with better content, they're not going to be just relying on Stranger Things. They have a lot of different series that they're building out and I remain invested in the company.
Look, I invested in Netflix at, with the intention of holding the Any for five to ten years and as long as they stay on track and they're able to grow over a long period of time, I still want to own a piece of the biggest streaming company in the world, that's currently Netflix. And no one else is even close to him. So I'm going to continue holding my Netflix position. The stock doesn't look like it's raised up like, like any insane amounts up, 12 percent 14 bucks.
So, I might actually over the next couple of days. I may actually be adding more to my Netflix position and lowering my cost basis on the stock. Shocked, because I am bullish on it if they can grow a million next quarter, then a couple million to quarter after that during the winter months, this company could be on track and I do see their free cash flow profile improving over time. In the meantime, Netflix remains a very devaluation of it. It's at a 17 PE ratio, 16
trailing P/E. It's at a price to sales of 2.7. So the, the valuation of the hype has been taken out of the stock. So it may be one that I actually might Add a little bit more to over the upcoming week, but that's my thoughts on it. I hope you enjoyed this little quick reaction video and I'll see you in the next one.