Netflix’s Accounting Rules Are Hidden Risk for Investors

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In late 2010, Tilson pointed out that Netflix‘s “acquisition of streaming content” on the cash flow statement wasn’t immediately being recognized under “acquisition of streaming content library” as an expense in the income statement.

For the third quarter of that year, Tilson noted that even though streaming-content costs were $115 million (up 74%), the associated amortization expenses increased only 17%. He noted in his presentation that from the first quarter of 2007 through the third quarter of 2009, acquisition costs were roughly equal to the amortization expense. Yet, starting in the fourth quarter of 2009 (when streaming-content costs started to accelerate), the two diverged.

via Netflix’s Accounting Rules Are Hidden Risk for Investors – TheStreet.

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