Netflix Sets Plan For $2B Bond Offering, Extending Reliance On Debt As It Grows

Netflix said Monday it is returning to the bond market, planning a $2 billion offering that will continue the streaming giant’s oft-scrutinized strategy of relying on debt as it grows.

The offering will have an interest rate to be determined. The 22-year-old company currently has a set of notes at a rate of 5.875% and most recently offered bonds in April. Netflix’s long-term debt is now more than $14 billion. While that figure concerns some skeptics of the company’s potential, it is also several times less the debt loads of many traditional media companies, which have taken on debt to grow through M&A, a path Netflix has not taken.

In its announcement, Netflix said the proceeds from the bond offering will be used for “general corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

Investors didn’t register too much initial concern with the move. Netflix shares were trading Monday morning at about $274 a share, down a fraction. In 2019 to date, they have risen nearly 3%, lagging the 19% advance of the S&P 500.

Last week, bulls and bears wrestled over the takeaways from Netflix’s third-quarter financial report. The numbers showed a rebound from disappointing second-quarter results, and optimists declared that the bumpy summer was fully in the rear-view mirror. But bears took note of the company’s own admission that competition could become a significant obstacle and that price hikes have slowed the company’s growth unsettled some investors. Debt also is mentioned by many skeptics of the company, as is its massive outlay on content. Netflix spends several times what rivals do on content, shelling out $15 billion in 2019.

While Netflix has enjoyed a head start of several years in the streaming marketplace, paying media companies large sums for their content as it grew. But over the next six months, Disney, Apple, WarnerMedia and NBCUniversal will all launch significant new streaming initiatives designed at offering alternatives to Netflix. While the fundamental outlook of Netflix management is that the streaming business can sustain several companies and won’t have a single winner, the company could be vulnerable to more churn.