- Netflix on Monday launched a new $US2 billion debt offering to fund its cash-burning content business.
- This latest round of junk bond offerings will push Netflix’s debt load above $US10 billion for the first time, according to Bloomberg.
- The streaming-media giant posted last week third-quarter earnings and subscriber growth that topped expectations, but warned investors that the costs of developing original content will continue to weigh on its profit this year.
- Watch Netflix trade in real time here.
Netflix is launching a new $US2 billion debt offering to fund its cash-burning content business. Shares dropped 1.26% on the news.
The streaming-media giant announced Monday that it intends to offer approximately $US2 billion of unsecured senior notes in dollars and euros, and use the net proceeds to support content acquisitions, production and development, as well as other corporate purposes.
This is not the first time Netflix has issued junk bonds to fund its business this year. In April, the company raised $US1.9 billion in an upsized deal.
This latest junk bond offering will push Netflix’s debt load above $US10 billion for the first time. Investors expect the bond yields to be 6.38% for the US portion, and 4.63% for the euro notes, Bloomberg reported, citing sources familiar with the matter.
Last Tuesday, the company posted third-quarter earnings and subscriber growth that topped expectations, but warned investors that the costs of developing original content will take a bite out of its profit at the end of the year. Shares rallied 14% immediately following the earnings, but dropped back to its pre-earnings level on Monday.
“Our growing mix of self-produced content, which requires us to fund content during the production phase prior to its release on Netflix, is the primary driver of our working capital needs that creates the gap between our positive net income and our free cash flow deficit,” Netflix said in its earnings release.
Netflix added that its cash burn in streaming content will hold steady at $US3 billion for fiscal year 2018, and currently sees next year’s negative free cash flow as roughly unchanged.
“Netflix has pretty consistently borrowed as they burn cash. This is what we forecasted, so not a surprise at all,” Wedbush analyst Michael Pachter, a long-time Netflix bear, told Business Insider on Monday when commenting on Netflix’s recent debt offering.
Pachter has a “underperform” rating and a price target of $US150 – 54% below where Netflix shares are trading Monday.
“Investors are likely now to focus more on a break-even timeline given the company indicated negative free cash flow levels in 2019 will be similar to this year,” Nomura Instinet analyst Mark Kelley told Business Insider. He has a “neutral” rating and $US370 price target for Netflix 13% above its current price.
Netflix shares are up 74% this year.
- The secret weapon that’s kept stocks afloat for the past decade is vanishing – and it’s leaving the market vulnerable to the next big crash
- The head of tech of one of the world’s largest consulting firms says the business world’s most overhyped new technology is also the most important
- BANK OF AMERICA: These 16 stocks are primed to smash investor expectations and beat the market as we enter the most crucial stretch of earnings season
Business Insider Emails & Alerts
Site highlights each day to your inbox.