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Netflix CEO Reed Hastings in his Q2 shareholder letter: “We’ll continue to finance our capital needs in the high-yield market,” (imag: Shutterstock.com)
Netflix CEO Reed Hastings in his Q2 shareholder letter: “We’ll continue to finance our capital needs in the high-yield market,” (imag: Shutterstock.com)

Netflix Adding to Debt Again with $2 Billion Bond Issue

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Netflix CEO Reed Hastings in his Q2 shareholder letter: “We’ll continue to finance our capital needs in the high-yield market,” (imag: Shutterstock.com)

Netflix Inc. announced it will take on debt for a second time this year with a goal of raising $2 billion.

The streaming video company is investing further in production of original shows and acquiring content.

More Debt for Netflix

This week, Netflix announced its intention to take on debt for a second time this year. It will be seeking to raise an additional $2 billion. The firm is continuing its effort to combat rapidly intense competition through investments into content acquisition on top of the production of its own original shows. That said, while accumulating new content is the bulk of the purpose for the additional funds, it intends to use the money to pay for a spectrum of different activities.

Reed Hastings, the Netflix CEO, has been consistently open about the company’s ongoing intentions to fund content creation and acquisition through debt. “We’ll continue to finance our capital needs in the high-yield market,” he said in his Q2 shareholder letter.

Investors Aren’t Turned Off by Netflix’s Debt

Investors continue to believe in the path Netflix is taking to ensure it remains competitive. For instance, Diamond Hill Capital portfolio manager John McClain said that Netflix’s move to boost its debt “makes sense to us.”

By the end of 2018, Netflix intends to have spent about $8 billion on increasing its content through acquisition and production. By the close of the third quarter, the streaming video company had already spent $6.9 billion on the acquisition an creation of new series and movies. Should the company continue spending at the same rate it did during the first three quarters, it will come closer to spending $9 billion on content by the end of this year.

Other Recent Debt Sales

In November 2017, Netflix raised $1.9 billion, then sold another $1.6 billion in debt in April 2018. This meant that their total debt accumulation had risen to $8.4 billion. Most of the funds the company has raised from the $8.4 billion has occurred throughout the last three years. According to a Reuters UK report, since the close of 2014, the percentage of the company’s total capital composed of long-term debt has approximately doubled to 65 percent.

That said, the company is still seeing very strong quarterly results, propelled by its international subscriber growth. This has helped to assuage any concerns that investors may have had regarding the video streaming service’s capacity to continue its expansion within developed markets.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.