Though Netflix, Inc. (NASDAQ:NFLX) pulled-back along with the rest of the market during the correction, investors with a longer-term time horizon should think about fundamentals of NFLX stock. The media streaming giant reported fourth-quarter revenue that jumped sharply.

Even more impressive is the subscriber growth Netflix reported in the last quarter. Its international growth ambitions ahead look promising, too.

Subscriber Growth and NFLX Stock

Netflix reported adding 1.98 million domestic streaming additions, surpassing its own 1.25 million guidance. Internationally, 6.36 million subscribers joined the service with memberships totaling 62.83 million. The subscriber count is now much bigger than the U.S. market, which had 54.75 million memberships at the end of the quarter.

Netflix needs all the additions it can get. The company is now forecasting $7.5 billion to $8 billion on content spend. With content expenses and other costs growing at a faster pace than subscription revenue, Netflix is willing to sacrifice cash flow. In the fourth quarter, free cash flow totaled -$524 million.

In its letter to shareholders, Netflix said it took a $39 million non-cash charge for unreleased content it decided not to move forward with. In effect, this cost is due to canceling the movie starring Kevin Spacey.

So long as the company does not face other unexpected write-downs in the future and subscription growth keeps pace, investors in NFLX stock need not worry too much about the negative cash flow.

Yet that negative two billion free cash flow will keep value investors away from investing in NFLX stock. The company is clearly building its content library to subscribers renewing their membership while trial signups keep coming in.

With the stock already up 34.5 percent year-to-date and bearishness at just 5.54 percent, the bullish momentum should keep the stock trading at elevated valuations.

Hit Titles

Netflix’s content costs do not show the value hit titles bring to the company’s value. Stranger Things (Season 2) resonated well with its viewers. The show also did well globally, which suggests the total overall subscriber retention should hold up.

As Internet TV continues growing and competitors like Alphabet’s YouTube or Hulu compete, Netflix is still well-positioned. Good quality, original content that is free of ads will attract customers willing to pay. YouTube still relies on advertising.

As Alphabet squeezes more revenue from videos by showing ads more frequently, it will only drive users to Netflix services.

CEO Reed Hastings reckoned the U.S. market size for Netflix would be somewhere between 60 million and 90 million. Since it is only at 55 million subscribers, the company has the drive to buy bigger titles to draw in more viewers.

Positive Catalysts

Last year in October 2017, Netflix raised prices to cover licensing and original show costs. Subscribers did not react at all. They were willing to pay for good content. That response gives Netflix plenty of options ahead as it continues to pay for content.

If costs go up more than its balance sheet allows, Netflix may raise monthly rates yet again. Raising prices without losing subscribers is a positive catalyst for NFLX stock.

The company’s ability to pick hit content is another ongoing positive catalyst for NFLX stock. On its conference call, it explained the strength of the Netflix team in picking the right projects:

“And a way to look at it is the investment that we try to make is we try to make sure that we’re restricting ourselves to the real core executive skill set which is picking great people, both picking great executives to help shepherd these projects but also picking great creatives and great projects to run with. “

The bottom line here is that Netflix must find a balance between small films with a lower budget and those that are bigger and cost requires finesse. As long as Netflix gets that right, subscribers are happy with the content and shareholders will not worry over the company stagnating.

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