Netflix is Taking on Another $2 Billion in Debt With Latest Offering


This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Netflix (NASDAQ:NFLX) is using a new debt issuance of senior unsecured notes expected to generate approximately $2 billion for general corporate purposes like content acquisitions, production, and development, capital expenditures, investments, working capital or potential acquisitions.  These notes will be offered to qualified institutional buyers with the interest, redemption, maturity date and other terms to be negotiated between Netflix and the initial purchasers. The announcement of this offering caused a drop in the share price of the company for a short time before bouncing back later in the day. This new offering will bring long-term debt to around $14.4 billion.  The company has so far accumulated more and more debt without any efforts to pay the debt down. Generally, this debt is being used to generate additional content in the hopes of expanding the subscriber counts.

Fortunately for Netflix and investors in the company, these debt issuances are currently easily able to be covered by earnings.  So far this choice to use debt rather than capital raises is a strategic choice for the company. Over the last 5 years the company has seen its debt swell from under $1 billion to over $14 billion in an attempt to generate content for its platform as it recognized a large vulnerability it had in licensing content from other creators for use on its platform and it recognized that streaming was a wide-open market that any content creator could enter.   Right now content creators are recognizing that they can start their own streaming services to generate additional revenue and compete in this marketplace. As our readers are aware Netflix is facing new completion from these rival streaming companies and is being forced to spend on new content so that it can shift its business practices from licensing content from other creators to creating its own content.  

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As a newcomer to the content creation scene, Netflix is going to need to work overtime to provide exclusive and exciting material for its subscribers.  Other companies have decades and in some cases nearly a century of material and experience to draw upon in providing viewers with compelling entertainment and value. Content creation is also a very capital intensive exercise which means that the company is going to need to continue to borrow, offer equity or increase capital expenditures from its profits to maintain its trajectory.  Even though these expenditures are needed to help grow the business, it does not mean the firm can just spend like it is pouring gasoline on a fire. They still need to be deeply concerned that they are producing quality content that builds customer loyalty unlike they are currently operating, which is generating a lot of mediocre content with a few gems here and there. 

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