Netflix recently announced a new $ 2 billion debt to inject into its content industry. On September 30, Netflix reported $ 12.43 billion in debt, up from $ 10.36 billion at the end of last year.
This is the eighth time in the last five years that Netflix has received $ 1 billion or more in debt, having acquired another $ 2.5 billion in April.
Debt to face competition
Netflix continues to spend billions on buying or producing rights to various software itself, until it faces new competitors that are flocking to the market, including Disney, Apple and Warner Media. Netflix needs funding to cover the content budget, which is expected to reach $ 15 billion in 2019 on a cash basis.
Last week, when third-quarter results were announced, Netflix told investors it plans to raise more debts for the full year.
"With a rapidly growing revenue base and expanding operating margins, we will be able to fund more of our content spending internally, and as we move slowly towards free cash flow positively, our plan is to continue to use the high-yield market in the meantime," the company said in a statement. To finance our investment needs. "
To date, Netflix has not paid any of the long-term debt it received, paying $ 160.7 million in interest expense for the third quarter (about 3.1% of quarterly revenue) compared to 108.9 million (2.7% of revenue) in the same period of the year. the past.
For the third quarter of 2019, Netflix reported a 31% year-on-year increase in revenue and indicated a 16.5% increase in average revenue per customer for its flowing customer base in the United States. The company highlighted the growth targets for local subscribers for the third quarter.
In addition to long-term debt, Netflix has billions of dollars in extra-budgetary content spending commitments, most of which are due within the next three years.
As of September 30, 2019, the company had $ 19.1 billion in content commitments, including $ 10.8 billion not included in its balance sheets "because it has not yet met the criteria for asset recognition." According to Netflix, on average, it expects to cover more than 90% of the assets of licensed and original broadcast content within four years of the first availability of the service.
Risk of bankruptcy
Netflix's biggest problems at the moment are that it spends more and more to get new subscribers, but does not get them in sufficient and expected proportions of this spending. The percentage of money you spend on content and marketing per subscriber rose from $ 308 per new subscriber in 2012 to $ 581 per new subscriber now.
At the same time, revenue growth and subscriber growth have slowed down the amount of spending, demonstrating the failure of Netflix's original content strategy.
So is Netflix at risk of bankruptcy? In fact, yes, because so far it has not made any gains that can offset even a small part of its debts through which it seeks to compete and attract more users, and it is actually in a difficult situation even before the start of the real competition with the next two platforms strongly Apple and Disney Plus.