Netflix is borrowing another $2 billion through a bond offering, in what will increase its total debt to above $10 billion, nearly five times the level of early 2016. There’s nothing surprising about this: it’s a direct result of Netflix’s burning enormous amounts of cash to finance expansion. Last week the company projected a cash deficit of around $3 billion this year and about the same next year. On the same day, outgoing CFO David Wells told analysts it would be a “few years” before the company breaks even on a cash basis. Netflix’s regular bond offerings are what is funding that cash shortfall.
So far, this approach has worked because interest rates have been relatively low. But as rates rise, and as Netflix’s debt increases, bond investors are likely to get queasy, potentially forcing Netflix to pay more to borrow. Netflix’s reliance on the debt markets to pay for its expansion is its single biggest risk factor. With 130 million paying subscribers, Netflix should be able to generate cash.