Netflix plans $400 debt offering to fund European expansion

Michelle Clancy | 05-02-2014

Netflix has formally announced plans to raise $400 million in aggregate debt to use for acquiring original content and expanding into Europe. Netflix disclosed in its 2013 10-K that it plans to spend nearly $3 billion on content in 2014, and $6.2 billion over the next 36 months.

The company also said in its long-term view document that it plans to spend $500 million-plus on marketing this year.

Netflix confirmed that it plans to "significantly increase our investments in international expansion, including substantial expansion in Europe in 2014, and in original content. As a result, and to take advantage of the current favourable interest rate environment, we plan to obtain approximately $400 million in long-term debt in the first quarter of 2014."

To put that in context, at the end of 2013, it already had $500 million in 5.375% senior notes outstanding.

"At $900 million of total long-term debt, we will have an extremely modest debt-to-equity ratio," CEO Reed Hastings and CFO David Wells wrote in their Q4 letter to shareholders.

But Netflix is expected to generate 2014 revenue of $5.4 billion, an increase of 23% year-over-year. Interest on the new notes will accrue at 5.75% per year, payable beginning on 1 September 2014 and maturing on 1 March 2024. In all, Netflix's debt-to-equity ratio comes in at around 0.67 if calculated using long-term debt, and about 3.36 if using total liabilities including $1.3 billion in non-current content liabilities as of the end of 2013.

Content acquisition spending for the expansion would appear to largely be earmarked for library content. Investment in original content will substantially increase in 2014, but still represent less than 10% of overall global content expenses.

For Q4 2013, Netflix added 2.33 million streaming subscribers in the US to reach 33.4 million total domestic subs, and 1.7 million overseas subs to reach 10.9 million internationally.