Magazine article Variety

Netflix Streams More Debt

Magazine article Variety

Netflix Streams More Debt

Article excerpt

netflix is again going deeper into hock.

In the streaming service's latest move to cover its massive global content costs, $1.4 billion in new debt was issued last week, adding to its $3.37 billion in existing long-term obligations. It's the third time in a little more than two years that Netflix has raised more than $1 billion in debt financing.

But the company's mounting debt and content-payment obligations have raised a new question on Wall Street: When will Netflix take its foot off the gas pedal?

"You can't spend like this on programming forever," said Michael Nathanson, principal at MoffettNathanson, who expects Netflix to shell out $8 billion in cash for content in 2017. "When do they feel they've built the perfect scale and can slow it down?"

The company has reassured investors that it isn't excessively leveraged, noting in its first-quarter letter to shareholders that it has a debt-to-market-cap ratio of less than 10%, far smaller than that of industry peers.

But that doesn't account for Netflix's content obligations - the billions in payments for programming over a period of several years. That figure stood at $15.3 billion at the end of the first quarter, more than double that of the same quarter three years earlier. A whopping $8.4 billion of that $15.3 billion isn't reflected on Netflix's balance sheet.

To finance the latest debt offering, a Netflix representative said the company is targeting non-U.S. lenders because European interest rates are attractive. Moreover, the rep said, "Netflix is a global company, and we want to have access to global capital markets."

The company's hypothesis: It needs to spend big now to keep the customer-growth engine humming before it can reach cruising speed and live within its means. So far, execs have sold that story to the investment community, and nobody on Wall Street is worried that Netflix is becoming over-leveraged. …

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