(2017-07-31) Netflix Is Carrying20 Billion In Debt Can It Keep Borrowing Its Way To Success

Netflix is carrying $20 billion in debt. Can it keep borrowing its way to success?

expects to spend at least $6 billion in content this year. Its net cash outflow this year is forecast to grow to as much as $2.5 billion, up from $1.7 billion last year.

Netflix has accumulated a hefty $20.54 billion in long- and short-term debt in its effort to produce more original content.

The goal, executives say, is to increase the portion of self-produced originals to 50% of its slate in an effort to own more of the shows on its platform

“That's a lot of capital up front, and then you get a payout over many years,” Chief Executive Reed Hastings said in a recent investor call.

some of the best-known shows on Netflix aren’t made by Netflix

Netflix pays undisclosed licensing fees for the exclusive rights to stream these shows. And many of those fees are expected to rise over time as TV networks — which have grown increasingly wary of Netflix — look to protect their business from further erosion.

“I don’t believe Netflix is going to get this right at a better rate than anyone else,” said Michael Pachter, a Wedbush analyst who has long been pessimistic about the company. He said his “underperform” rating on Netflix shares has been wrong in the past but believes the company’s lavish spending will eventually catch up to it.

For the first time, Netflix counts more overseas subscribers than domestic ones

*Additionally, more than half of Netflix’s short-term debt of $15.7 billion isn’t reflected on its balance sheets. In its most recent quarterly filing, the company said it has $8.2 billion in off-balance-sheet debt. The practice is a common accounting technique but it is also a way for companies to paint a rosier financial picture than may be the case.

Amazon, whose Prime Video and studio divisions are a major competitor, also holds billions in long-term debt, but its online retail operations generate ample free cash flow.*