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In its most recent third-quarter earnings report, Netflix reported $5.2 billion in revenue and $665 million in net income, but its free cash flow — the cash left over after paying for the expenses and expenditures to run the business — was -$551 million (yes, negative $551 million). Just for a comparison, in Disney’s most recent quarter the company reported free cash flow of $409 million, which was down, in part, thanks to its acquisition of Fox’s film and TV assets.

“In the second half of 2019, equity investors became more skittish about companies that don’t make money,” Needham analyst Laura Martin wrote this week in a note to investors, downgrading Netflix’s stock to underperform. “Profitability and positive free cash flow represent lower risks for investors in the event of an unforeseen market disruption. An elongated reliance on capital markets will be perceived as an investment negative by Netflix investors.”

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Netflix is, for the moment, swimming in debt. By last count, Netflix’s total liabilities, including long-term debt, totaled $24.1 billion, according to its most recent quarterly report.

The company has spent billions of dollars to achieve its first-mover advantage, positioning itself as the leader in direct-to-consumer streaming. And for a while it was the only major player — but not any more. While Netflix holds a massive lead in the streaming space with its 158.3 billion global subscribers, newcomers like Disney+ and Apple TV+, not to mention forthcoming services from Warner Bros. and NBCUniversal, are challenging both with content and, in many cases, cheaper monthly fees.

The streaming giant has historically held the belief that competition is good and that there’s enough room in the increasingly competitive landscape for more than one platform to be successful. In September, however, Netflix CEO Reed Hastings told Variety that “it’s a whole new world” once Apple and Disney launch their streaming services.

Macquarie analyst Tim Nollen wrote in a note in October that he only expected a modest impact on churn as a result of Disney+ and Apple TV+, but Martin has much bigger concerns.

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“We project Netflix will lose 4 million U.S. subs in 2020 at its premium priced tier of $9-$16 per month,” Martin wrote in her note to investors. “We believe Netflix must add a second, lower priced, service to compete with Disney+, Apple TV+, Hulu, CBS All Access and Peacock, each of which have $5-$7 per month choices.

“Losing U.S. subs would be disastrous for Netflix from a free cash flow point of view because each U.S. subscriber generates an average of nearly 3x more profit contribution than each international subscriber,” Martin continued.

So if Netflix lost even 4 million subscribers in the U.S., the company’s 2020 profit contribution would drop by roughly $260 million per year, by Martin’s estimate, worsening its negative free cash flow and increasing its dependence on capital markets for funding.

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Netflix leadership has said repeatedly that they don’t plan to institute an ad-based model, but that may be the best option to achieve an additional income stream. The lion’s share of all of Netflix’s revenue comes from its subscription business, but the U.S. market has been reaching a peak for years and the international opportunities are getting crowded.

Compounding matters for Netflix, it may not be as easy to turn to another time-tested way to boost revenue — hiking prices on subscribers. The monthly cost, especially compared to upstarts like Disney+, is already one of the reasons Martin gives for the estimated 4 million loss in subscribers. In addition Netflix blamed an unprecedented second-quarter drop in U.S. subscribers on a subscription hike earlier this year. 

“Netflix’s balance sheet cannot withstand larger cash losses,” Martin wrote in her note. “We believe that the best business solution to Netflix’s biggest valuation risk is to introduce a $5-$7 per month service tier, with adverting generating the remaining $5-7 per month to retain the $13 per month U.S. revenue metric. Several successful SVOD services offer this hybrid model. ”

In a letter to shareholders back in July, Netflix doubled (tripled?) down on its opposition to an ad-supported model, saying that being ad-free “remains a deep part of our brand proposition… We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

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The company’s comments came amid months of speculation about whether the streamer would give in to the need for ad revenue. TheWrap, in July, wrote that there was certainly a path for Netflix to implement an ad-supported model.

“Netflix needs a way to grow its U.S. revenue in ways beyond just raising the subscription price,” Brian Frons, former president of ABC Daytime and current UCLA lecturer, told TheWrap at the time. “One wonders why they would not add an ad-supported model.”

While another revenue stream seems, at this point, to be a near necessity, it’s also possible that shoehorning ads into the service might not be a simple fix. “In our survey work, the No. 1 reason that U.S. consumers subscribe to Netflix is that it is commercial free,” MoffettNathanson analyst Michael Nathanson said in an email. “They’d be insane to do it.  Probably better to try it in other markets where consumer spending on premium video is less robust.”

Sean Burch contributed to this report.