The $ 2 billion debt issue by Netflix increases the nervousness of spending

(Reuters) – Netflix Inc (NFLX.O) announced Monday its third call on debt markets in one year, with the goal of raising an additional $ 2 billion, the pioneer of video streaming investing heavily in original programming and in the acquisition of content in order to counter the intensification of competition.

This decision, which aimed to fund a wide range of activities, has resulted in a decline in the prices of its bonds and its shares, investors worrying about the rising costs of its huge investments planned in the years to come .

Netflix announced in April its intention to raise $ 1.5 billion in debt, after raising $ 1.6 billion last October, bringing the total to about $ 5 billion last year, just half of the total. $ 9 billion will be spent on content in 2018.

Last week's record results, driven by the rise in the number of international subscribers, again eased fears that the global leader in streaming lacks space to expand into developed markets where it can target a mass audience at profitable prices.

But while Netflix still has huge potential in emerging markets such as India, some brokerages have begun to draw attention to the generally high cost it pays as a company to attract more users .

Netflix's existing debt prices fell globally on Monday, the largest declines of a bond maturing in 2026 64110LAN6 =, which fell about 3 cents to 91.5 cents to the dollar. The euro bond maturing in 2028 US170932935 = also fell nearly 3 cents to 91.95 cents per dollar.

The bearish bets on Netflix's $ 8.4 billion bad-rated bonds have more than tripled this year to an unprecedented $ 347 million, Reuters reported last week.

The company has always said that it intends to finance content acquisition through the high-yield bond market, but its cost has been rising in line with US and European interest rates.

"This is further evidence of Netflix's need for capital to finance short-term operations and content investments," said Richard Miller, founder and managing partner of Gullane Capital, who wrecked equity.

"This shows that they are further than ever to be positive in free cash flow."

Supported

Some 27 of the 43 brokerage analysts who cover Netflix continue to support equities with a "buy" rating, compared to only three with a "sell" rating, although its shares have fallen since last week's results.

This shows that most respondents left him in doubt about the lack of subscribers in the second quarter and that the company has also reduced its negative cash flow forecast to nearly $ 3 billion, whereas it was previously lower at $ 4 billion.

S & P has assigned the proposed debt issue a recovery note "BB-" and "3". The recovery note indicates a significant recovery of approximately 65% ​​of the capital in the event of default. (Bit.ly/2CVLt4g)

The rating reflected the improvement in the company's underlying profit margins over the past 12 months, due in part to higher prices and higher subscriber growth.

"These factors demonstrate the strength of the company's business model and its ability to grow globally, increase margins and manage the ever-increasing debt burden," said S & P.

The new debt will be in the form of senior notes denominated in US dollars and euros – securities that the Company must repay before any unsecured debt in the event of bankruptcy.

Netflix's total debt was $ 11.83 billion as at September 30th.

The company now trades nearly 115 times its anticipated profits, making it the second most expensive cost of the group of major technological bets FAANG, after that of Amazon.com Inc (AMZN.O) 160 times, according to Refinitiv data.