Netflix eyes $2 Bn debt round to keep up with cash burn in content

Netflix India mobile subscription

US based OTT platform Netflix has announced its plans to raise another round of debt financing with a target amount of $2 billion.

Last, it had raised $1.9 billion in April this year and $1.6 billion in October 2017. Overall, as at the ending of Q3 2018, the company’s total debt stood at $11.83 billion, and according to Market Insider, the estimated net debt of Netflix is $6.8 billion for 2018.

As per Crunchbase data, the company has only engaged in debt financing post IPO. It signifies, how well the company is doing as debt financing requires timely repayment, substantial collateral, solid plans for the future.

Further, it enables the companies to raise funds in quick time, while equity fundraise takes longer time due to negotiations and discussions.

This time, like previous times, the company’s purpose of raising this quick finance lies in the rapid increase in content created and distributed via the platform.

The increase in the number of users (like 6.1 million new subscribers in Q3 2018), and the increase in the variety of content are two interdependent factors forming an endless loop that requires a lot of cash burn.

According to ETTech, this cash burn is ever increasing with the figures going up from negative $465 million in Q3 2017 to negative $859 million in Q3 2018. It is estimated that the cash burn will lie between $3-4 billion for the whole year 2018.

Netflix had promised its shareholders to spend about $7.5-8 billion in content in 2018 across the variety of formats and it seems to be using the method of debt financing to head towards that target, with all the quick time money, tax deduction privilege, and lesser equity dilution advantage it provides to the company.

The investors aren’t worried about the debt securities based on the profits that the platform is generating with every quarter.

To further increase its revenue via scale, especially in India, the company announced its plans last week to launch new plans with lower subscription models for the country.

It would be a thrilling ride to see the variety of content that the platform dabs into in upcoming future with the debt money it plans to keep on raising.

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