Netflix continues to be in debt

netflixLast week, Netflix presented very solid figures for the first quarter. Even before, I had assumed that the company would soon raise more money in the bond market. And that’s exactly what you do now. With an improved credit rating and rising EBITDA profits, the video streaming giant is going on.

What’s new?
On Monday morning, Netflix announced it would raise about $ 1.5 billion from another bond sale. No wonder – since the fall of 2016, the company reliably sells senior notes every six months.

The magnitude of this this cash-raising – had increased from time to time. At first it was 800 million dollars, then 1.3 billion and then another 1.6 billion dollars. This time it is “only” $ 1.5 billion.

As always, these funds are used for “general business purposes,” but above all to support the capital-intensive creation of Netflix’s original series and films.

The exact terms have not yet been announced, but Netflix will probably release them later this week. The bond sales of the company usually take only a few days from the first announcement to completion. I assume the papers will run for 10 years, but this time they will be below the 4.875% they had last October. That’s the advantage of a now better credit rating.

Let’s take a closer look at Netflix’s long-term borrowing situation:

netflix bond

What does that mean?
Netflix wants to further increase the number of subscribers by allowing funds to be used by borrowing to develop their own content.

According to the plan, these systems will pay off over time, as Netflix owns these films and series and can basically use them forever. Content licensing by other studios means long term recurring royalties and royalty payments, and Netflix seeks to reduce those burdensome costs. Therefore, the company invests in high-quality series such as Stranger Things , Okja , Altered Carbon and Mindhunter and expects these titles to captivate subscribers for years to come.

The upfront costs of this strategy are high, but the benefits to brand building and subscriber growth are likely to increase. Over time, incoming profits should outweigh the budget for content production so that Netflix can pay off its debts rather than more debt. The rating agency Moody’s assumes that this turning point will be reached by 2022.

Currently, taking in more debt is simply Netflix’s standard practice, so the ball keeps rolling.

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