Netflix to raise another $2bn through debt to fund massive spending

Netflix, burning boatloads of cash with a projected $15 billion content budget for 2019, is adding to its debt load once again.

On Monday (Oct. 21), Netflix announced plans to offer approximately $2.0 billion aggregate principal amount of junk bonds, in both US dollar and euro denominations.

As of Sept. 30, Netflix reported $12.43 billion in debt, up from $10.36 billion at the end of 2018. The latest proposed debt offering would be the eighth time in the last five years that Netflix is raising $1 billion or more through debt. The streaming giant last raised $2.2 billion in junk bonds in April 2019.

Netflix continues to spend billions on programming, as it faces a wave of new streaming rivals coming to market including Disney, Apple, WarnerMedia and NBCUniversal. Netflix needs the funding to cover a content budget projected to be $15 billion in 2019 on a gross-cash basis. Last week, in announcing third-quarter 2019 results, Netflix told investors that it planned to raise more debt. For the full year 2019, the streamer expects free cash flow to be negative $3.5 billion (versus $3.0 billion last year).

“With our quickly growing revenue base and expanding operating margins, we will be able to fund more of our content spending internally,” the company told shareholders in its Oct. 16 letter. “As we move slowly toward positive, our plan is to continue to use the high-yield market in the interim to finance our investment needs.”

To date, Netflix hasn’t paid down any significant amount of the long-term debt. It paid $160.7 million in interest expense for Q3 (about 3.1% of quarterly revenue) compared with $108.9 million (2.7% of revenue) in the year-earlier period.

For the third quarter of 2019, Netflix reported revenue up 31% year-over-year and touted a 16.5% increase in average revenue per customer (ARPU) for its US streaming customer base. (RTRS)