Netflix Inc. (NASDAQ: NFLX) is prepared to take on even more debt. The online video delivery leader said in a press release that the company is planning to take on approximately $2.0 billion in new debt via the sale of senior unsecured notes.
The notes will be offered as a private placement in dollars and euros (Rule 144A for U.S. investors and Regulation S outside of the United States).
Netflix indicated that it will use the net proceeds from this offering for general corporate purposes. That includes content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions. This comes at a time where some investors might be thinking that growth is slowing down after earnings as Disney is about to go into full-on competition mode.
Netflix continues to be considered a junk bond, with its speculative ratings at major credit ratings agencies. Moody’s issued a note ahead of the offering that Netflix’s leverage is still high for a Ba3 rating, although its high growth is still evident. In October of 2018, Standard Poor’s upgraded Netflix to BB- with a Stable outlook. Fitch had voiced some concern about the trends in January.
Some investors have voiced concern that Netflix is burning through massive amounts of cash and taking on large amounts of debt to produce content that may have some stickiness to its platform today while leaving the company burdened with debt for years into the future.
To show just how much debt there is, note that the company’s long-term debt was $10.36 billion at the end of 2018, up from $6.49 billion at the end of 2017, $3.36 billion at the end of 2016 and just $2.37 billion at the end of 2015. Its total liabilities level was $20.7 billion at the end of 2018, almost double what it was just two years earlier.
For a comparison to revenues: Netflix had just under $15.8 billion in 2018, and the Refinitiv consensus revenue estimates are $20.21 billion for 2019 and $24.98 billion for 2020.
Netflix shares were last seen up fractionally at $377.69 on Tuesday morning, in a 52-week range of $231.23 to $423.21. Netflix has a consensus price target of $383.63 and a $164 billion market value.