Netflix Carries Outsize Debt to Fund Original Content

Chart by Mike Sullivan. Source: Moody's.

Netflix is carrying twice as much debt, relative to its reported profits, as other major media companies, according to credit ratings agency Moody’s. The figures highlight the financial risk the streaming service is taking as it spends tons of money to create original films and TV shows.

Netflix has been borrowing money because it is spending more than it is generating from its business. This year, for instance, Netflix expects to burn through between $2 billion and $2.5 billion in cash and doesn’t expect to generate cash for “many years.”

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Also, Moody’s ebitda calculation subtracts stock-based compensation expense, unlike ebitda calculations performed by equity analysts. Moody’s analyst Neil Begley said that because stock awards are a form of compensation, it is appropriate to treat it as an expense equivalent to cash compensation.

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Netflix likes to compare its debt to its market capitalization, which isn’t a common measure and makes its debt look low.