Finance
Netflix issues $2 billion junk bonds to fund content spending
- Netflix on Monday launched a new $2 billion debt offering to fund its cash-burning content business.
- This latest round of junk bond offerings will push Netflix’s debt load above $10 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 $2 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 $2 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 $1.9 billion in an upsized deal.
This latest junk bond offering will push Netflix’s debt load above $10 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 $3 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 $150 — 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 $370 price target for Netflix 13% above its current price.
Netflix shares are up 74% this year.
Now read:
Markets Insider
-
Business7 days ago
Langdock raises $3M with General Catalyst to help businesses avoid vendor lock-in with LLMs
-
Entertainment7 days ago
What Robert Durst did: Everything to know ahead of ‘The Jinx: Part 2’
-
Entertainment6 days ago
This nova is on the verge of exploding. You could see it any day now.
-
Business6 days ago
India’s election overshadowed by the rise of online misinformation
-
Business6 days ago
This camera trades pictures for AI poetry
-
Business7 days ago
CesiumAstro claims former exec spilled trade secrets to upstart competitor AnySignal
-
Business5 days ago
TikTok Shop expands its secondhand luxury fashion offering to the UK
-
Business6 days ago
Boston Dynamics unveils a new robot, controversy over MKBHD, and layoffs at Tesla