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Netflix sells $2.2 billion of junk bonds as it braces for onslaught of competition

Company raises more funds for new content, production and development and potential acquisitions

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By Ciara Linnane, MarketWatch


Bloomberg News/Landov

Updates to reflect bond pricing details

Netflix Inc. raised another $2.2 billion on Tuesday to help it finance new content as the battle for streaming customers heats up with a slate of offerings on tap.

Netflix /zigman2/quotes/202353025/composite NFLX +3.16%  issued junk-rated bonds over a two-day period that were denominated almost evenly in euros and dollars, with the euro portion pricing at 3.625% and the dollar parcel at 4.875%. Both sets of bonds give the streaming giant another source of low-cost funding through 2030, with proceeds earmarked for a range of purposes, including content, production and development and potential acquisitions.

The company will face highly competitive offerings from deep-pocketed rivals Walt Disney Co. /zigman2/quotes/203410047/composite DIS +2.79%  and Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.39%  that will launch in November. Disney+ is priced at just $6.99 a month compared with the $8.99 Netflix charges for its basic plan, and will include its entire library of films and TV shows, including the Marvel and “Star Wars” franchises. Comcast Corp.’s /zigman2/quotes/209472081/composite CMCSA -0.36%  NBCUniversal will also pull some of its existing content from Netflix once licensing agreements expire, including “Friends” and “The Office,” which have proved popular with a millennial audience.

See: Martin Scorsese says for cinema, streaming is ‘an even bigger revolution than sound’

Also : Opinion: Netflix is now a ‘don’t touch’ stock for investors

The Apple TV+ offering is priced at $4.99 a month and will be free for one year with the purchase of a new Apple device. For now, the content slate looks slim compared with Netflix, but the iPhone maker is expected to grow through acquisition.

See now: As Netflix earnings loom, here comes an onslaught of competition — and content

Those services will be followed by offerings from Comcast’s Peacock service and AT&T Inc.’s /zigman2/quotes/203165245/composite T +0.29% HBO Max are due in spring 2020. Netflix is already competing with services from Amazon.com /zigman2/quotes/210331248/composite AMZN +0.09%  and Hulu.

Just last week, Netflix acknowledged that the coming slew of competition may hurt new-subscriber growth. The company said it expects that subscriber growth will decline year-over-year in the usually strong fourth quarter and for the entire year, even with a strong slate of new shows.

“The launch of these new services will be noisy,” Netflix executives said in their quarterly letter to shareholders. “There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance.”

For more, read: Netflix finally admits the obvious: Competition from Apple and Disney will hurt

Click to Play

Netflix's Hollywood rivals are spoiling for a fight

Disney, AT&T and Comcast have plans to enter the streaming-video ring, armed with well-known TV and movie brands. But can they hold their own against industry juggernaut Netflix? Photo illustration: Heather Seidel/The Wall Street Journal

Netflix has mostly funded its content acquisition and production by issuing junk bonds, putting its long-term debt at about $12.5 billion.

Pricing on the 10½-year dollar-denominated notes narrowed from initial talk in the area of 5.125%, according to CreditSights. Th euro-denominated parcel also narrowed from initial talk in the 3.875% area, indicating robust demand by investors for the company’s debt despite its ongoing cash-burn.

The company’s most active bonds, the 5.875% notes that mature in November 2028, were last quoted at a yield spread of 276 basis points over comparable Treasurys, according to bond trading platform MarketAxess.

CreditSights analyst Hunter Martin expects Netflix to tap the high-yield market again in 2020 to raise an additional $2.0 to $2.5 billion.

Moody’s Investors Service, which rated the debt deal Ba3, said it expects Netflix to break even in 2023 and for its current gross leverage of 6.6x to “gradually drop over time with subscriber growth” and as the company’s earnings improve as it creates more original content.

See also: AMC Theatres launches streaming service in latest blow to Netflix

Related: Why no streaming company will be able to dethrone Netflix

Shares were down 4.09% on Tuesday, and have lost 0.4% in 2019, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.07%  has gained about 20% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.09%  has gained almost 15%.

See now: Netflix thinks ‘Fortnite’ is a bigger competitor than other streaming services

<STRONG>Additional reporting by Joy Wiltermuth</STRONG>

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$ 304.35
+9.32 +3.16%
Volume: 5.94M
Nov. 18, 2019 1:42p
P/E Ratio
97.16
Dividend Yield
N/A
Market Cap
$129.30 billion
Rev. per Employee
$2.22M
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$ 148.71
+4.04 +2.79%
Volume: 10.25M
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P/E Ratio
21.34
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1.19%
Market Cap
$260.61 billion
Rev. per Employee
$295,532
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 266.80
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22.50
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1.15%
Market Cap
$1180.84 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/209472081/composite
US : U.S.: Nasdaq
$ 44.40
-0.16 -0.36%
Volume: 6.58M
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P/E Ratio
16.44
Dividend Yield
1.89%
Market Cap
$202.72 billion
Rev. per Employee
$513,625
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/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 39.61
+0.11 +0.29%
Volume: 9.15M
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P/E Ratio
17.71
Dividend Yield
5.16%
Market Cap
$288.55 billion
Rev. per Employee
$637,332
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,741.10
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Volume: 1.73M
Nov. 18, 2019 1:42p
P/E Ratio
77.14
Dividend Yield
N/A
Market Cap
$862.43 billion
Rev. per Employee
$359,671
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/zigman2/quotes/210599714/realtime
US : S&P US
3,122.55
+2.09 +0.07%
Volume: 892.53M
Nov. 18, 2019 1:42p
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US : Dow Jones Global
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Volume: 127.92M
Nov. 18, 2019 1:42p
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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