Is Netflix Digging Its Own Grave by Burying Itself in Debt?

Netflix is once again borrowing money to keep its content library updated. This time, the streaming giant is borrowing $2 billion from debt markets, in the form of senior unsecured notes.Netflix says the money will be used to fund new content, including new acquisitions, production and development, investments, and strategic transactions, among others. The cause is indeed noble, but the rate of borrowing/spending is alarming, and it could be their undoing. Netflix could be joining Blockbuster very soon if it none of its risky financial moves pay off.

Sixth Debt Offering in Under Four Years

The move to borrow another $2 billion is not really surprising, considering that this debt offering is the sixth time in past four years that Netflix tried to raise more than a billion through bonds. They’re piling on more debt year after year, all in the pursuit of a comprehensive content library to satisfy its subscribers. The $2 billion will be added to their existing $12 billion debt, reported last September 30, 2018. It would’ve been great if it lead to profits that could slowly chip away their debt, unfortunately, the company reported negative free cash flow of more than $800 million in their Q3 earnings report.

If you listen to Netflix’s grand plans, it’s easy to feel hopeful for the company’s future. Everyone knows them, they have more than a hundred million paid subscribers, and their content library is really good. However, if you look at numbers, you’d realize that the company is struggling to stay afloat. They’re just leveraging their brand to be able to borrow more money from investors, but they’re not yet making money from their subscribers. They’re using the borrowed billions to keep their content library updated, in hopes of getting more subscribers, but in reality, they’re still haemorrhaging cash.