Netflix (NASDAQ:NFLX) investors have been giving the streamer another round of applause since the latest earnings report. Shares jumped up as much as 10% on the news, and the stock was trading up 4.3% at the time of writing.

It was an all-around solid report: Total subscriber growth easily beat estimates, with the company adding 7 million members against a forecast of just 5 million. Bottom-line performance was strong as well; operating margin improved from 7% to 12%. And earnings per share came in at $0.89, up from $0.29 a year ago, though it would have been around $0.79 with certain tax-related adjustments factored in.

Netflix naysayers, however, will find more to complain about in the company's cash burn rate, as management gave them more fodder with its forecast. The good news on that front is that, after the company lost $859 million in free cash flow in the recent quarter, Netflix said cash flow burn would come in closer to $3 billion than $4 billion. After that, however, Netflix management said it would continue to lose billions of dollars a year on a cash basis. On the earnings call it projected similar free cash flow of negative $3 billion to negative $4 billion next year, but the company expects material improvements in 2020.

Warning about continued cash burn, CFO David Wells said: "We still think it's going to be a few years toward breakeven, because we're optimizing, again, for long-term cash flow and long-term profitability, and we think that's the right thing." In other words, Netflix will have to take out billions more in debt to fund its content binge as it builds a big enough membership base to support the content budget. Wells seemed to say that the company foresaw a debt-to-market-cap ratio of between 20% and 25%, meaning that debt could balloon to between $32 billion and $40 billion, up from $8.3 billion today.

The reception area at Netflix headquarters

Image source: Netflix.

The profit mirage

Despite Netflix's unbelievable performance over the years -- the stock is up more than 10,000% over the last decade -- the streamer has plenty of bears betting against it. Wedbush analyst Michael Pachter has long been bearish on Netflix, currently maintaining a price target of $125. In other words, he sees the stock losing nearly two-thirds of its value; he said in July that Netflix is "in a vicious spiral to the bottom on content spend."

Others have argued that Netflix will eventually be challenged by competitors like Disney, which is planning to launch its own streaming service next year, potentially slowing Netflix's growth rate. And as my colleague Tim Green has explained, Netflix doesn't share how it amortizes content, so it's unclear how it's actually generating its profit numbers. Therefore, free cash flow represents the most transparent view of the business.

In the most recent quarter, Netflix's cash spending on streaming content was $3.2 billion, $1.3 billion higher than its $1.9 billion amortization of streaming content. As Netflix's content budget starts to plateau, those numbers should more closely resemble each other, easing its cash flow burn.

There are some positive signs that Netflix is taking steps in that direction: Its streaming content obligations -- the amount it's committed to spending for content -- have only increased 10% over the last year, from $17 billion to $18.6 billion.

Netflix should eventually reach diminishing returns with its content spend, as there's only so much programming that the platform can justifiably serve to add new members and maintain its current base. The strategy is clearly driving subscriber growth; the company sees record total additions of 9.4 million subscribers in the fourth quarter, or 7.6 million paid ones.

However, investors who are nervous about the company's cash burn will have to be patient, considering the company expects to lose another $3 billion to $4 billion in cash next year. It's planning another significant hike in content spending in 2019. That spending looks justified as the market is ripe, and Netflix wants to attract new subscribers before new competition enters the market. But with the stock price already looking elevated after nearly doubling this year, future gains will be more difficult while the company is still losing billions.

Eventually, investor attention will shift from subscriber growth to the company's bottom line and free cash flow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.