Netflix to Raise Capital ‘as Needed’ to Fund Originals
Netflix Inc. (NFLX), the biggest online video-subscription service, said it will raise capital “as needed” to fund original programming while its expansion outside the U.S. absorbs cash.
“Since we are otherwise using domestic profits to fund international markets, we will raise capital as needed to fund the growth of originals,” Netflix said in a document outlining the company’s “Long Term View” on its investor-relations website yesterday.
Over the next few years, Netflix projects it will dedicate less than 10 percent of content spending toward its growing originals slate. The company invests more than $2 billion a year on programming, including licensing and creating shows. Netflix, which sold $500 million in bonds this year, is funding exclusive shows like “House of Cards” and “Hemlock Grove” to keep ahead of rivals including Amazon.com Inc. (AMZN)
Netflix shares have risen 134 percent this year, making the company the the top performer in the S&P 500 (SPX) Index. The stock was little changed at $216.72 yesterday in New York.
Netflix, based in Los Gatos, California, converted $200 million of zero-coupon notes into stock this week, eliminating the obligation. On Jan. 29, Netflix offered $500 million in 5.375 percent senior notes due in 2021, using $225 million to pay off higher-interest notes and earmarking the rest for general purposes.
On Netflix’s earnings conference call this week, Chief Financial Officer David Wells said the company would consider raising capital in the future, though the company had no current plans.
“Yes, we would consider it and I would say we’re fine on capital at this point,” Wells said, in response to a question from an analyst about whether the company would raise more debt.
The company had more than $1 billion in cash and short term investments at the end of the first quarter.
Chief Executive Officer Reed Hastings has said efforts like the political thriller “House of Cards” and horror-genre “Hemlock Grove” can help fend off competitors by offering differentiated content to customers.
In May, the revived “Arrested Development” begins streaming, followed by “Orange Is the New Black,” a comedic drama set in prison from “Weeds” creator Jenji Kohan; “Derek,” about life in a senior center from Ricky Gervais; and, later in the year, season two of “Lilyhammer.”
Netflix said this week that it plans to begin service in an unnamed European country by the end of the year, after expanding into Canada, the U.K., Latin America and four Nordic countries.
The expenses for growth and content will pay off as consumers increasingly tune out of traditional television and look to click-and-watch video for their content, the company said in its long-term outlook yesterday.
“While hugely popular, the linear TV channel model is ripe for replacement,” the company said.
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