On hearing that Netflix, Inc. (NASDAQ:NFLX) would show negative free cash flow of $2 billion this year, up from $1.7 billion in 2016, markets pushed NFLX stock to new highs. Maybe investors saw the 5 million new subscribers that NFLX added in the quarter and stopped reading there.

Maybe investors missed the part where NFLX indicated that it anticipates “negative FCF to accompany (its) rapid growth for many years.” Or maybe they blithely felt that this was fine since Netflix is investing heavily in original content — never mind that there is no clear return on investment as the company continues to plow billions into programming.

Since all the buzz has been on subscribers, let’s take a closer look.

High Anxiety

Some 5.2 million total memberships were added in Q2 (4.6 million of those paid). This placated investors concerned about domestic market saturation. That’s up from the almost-5 million memberships the quarter before and 7 million in the previous three months.

When Netflix reported 7 million figure last December, markets breathed a similar sigh of relief. The 1.7 million announced in June 2016 and the 3.6 million in September 2016 raised concern that subscriber growth was slowing.

Last quarter, markets were somewhat anxious about the drop in subscriber growth (candidly, 2 million certainly isn’t insignificant), but this was balanced out by a steady international increase.

The nervousness fueled a selloff after NFLX reported earnings. After one more decent quarter, markets seem to have shaken off all concerns — unwarranted, in my opinion — and embraced full-fledged optimism.

Now that subscribers have passed the 100 million mark, pundits have set their sights on 200 million and even 300 million, using pie-in-the-sky logic to support a similarly fantastic multiple of 231x.

This makes fellow FANG Amazon.com, Inc.’s (NASDAQ:AMZN) 197x multiple seem quaint in comparison, and Alphabet Inc (NASDAQ:GOOGL) looks like a value play at 35x.

Content is King

But with AMZN, the money invested in original content stokes its flywheel. As CEO Jeff Bezos offered, “We get to monetize [our subscription video] in a very unusual way. When we win a Golden Globe, it helps us sell more shoes.”

With NFLX, there needs to be more clarity about its forecast returns on content investments. Operating margins must show demonstrable growth to prove to investors that content is in fact scaling revenue. They claim to want to “grow slowly” to manage the increase in both line items, but it sounds like a fallback excuse rather than a strategic reason for future negative FCF.

One More Thing About NFLX Stock

How many memberships the domestic market has to offer NFLX is not clear, but what is certain is that international streaming is the future of its growth.

Since Q1, total paid memberships increased an even 5%; International streaming fueled that growth, up 8.3% compared to rather anemic 1.9% increase in the U.S.

But don’t be bamboozled by that international number.

From a historical perspective, that’s low for that segment. In fact, it’s on the decline, with the three months ending December 30, 2016 showing 11.9%, only to be followed by 9.2% for the March quarter. The decreases are not reassuring.

Nonetheless, FANG stocks continue their ascent, and I am not one to stand in the way of momentum. But you have been warned here. By P/E, NFLX stock is now the most expensive among the FANGs, but fundamentals don’t support that.

 As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.