Netflix is going deeper into hock — announcing plans to offer $1.5 billion in debt notes — money it needs as it continues to dial up spending on original TV shows and movies.
[UPDATE: On Monday evening, Netflix priced the debt offering at $1.9 billion, a substantial increase from the initial plan.]
In announcing the planned debt financing Monday, Netflix included the standard boilerplate that it expects to use the net proceeds “for general corporate purposes,” but the company has been clear that it’s plowing capital into content. The financial instrument Netflix is using is to as referred as “junk bonds” in the industry, carrying a higher yield and higher degree of risk than investment-grade bonds.
Netflix reported booming first-quarter 2018 results last week, exceeding subscriber-growth estimates both in the U.S. and abroad, to hit 125 million total streaming customers at the end of the period. The company reiterated that it expects content spending to be $7.5 billion to $8 billion for 2018 on a profit/loss basis, in line with its previous estimates.
Netflix also told investors it will “continue to raise debt as needed to fund our increase in original content.” Netflix had $2.6 billion in cash and equivalents as of March 31, along with $6.54 billion in long-term debt and $3.44 billion in long-term content payment obligations.
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“Our debt levels are quite modest as a percentage of our enterprise value, and we believe the debt is lower cost of capital compared to equity,” Netflix said in its April 16 quarterly shareholder letter.
The latest proposed debt offering is the fifth time in a little more than three years that Netflix is raising $1 billion or more through bonds. That included $1.6 billion last fall, $1.4 billion (1.3 billion euros) in new debt financing a year ago, $1 billion in the fall of 2016 and $1.5 billion in February 2015. In addition, last summer Netflix took out a line of credit to borrow up to $750 million.
Pictured above: “Stranger Things,” one of Netflix’s most popular originals
