Struggling Netflix aims to boost cash reserves by $400m
Published 23/11/2011 | 05:00
NETFLIX, the streaming film service opening in Ireland next year, is seeking to raise $400m (€296m) and says it will not be profitable in 2012 as the scale of its self-inflicted problems become clear.
The US company said it would sell stock and convertible notes to improve its cash reserves in order to fund more spending on films and TV shows.
The fundraising and warning for 2012 caps a tumultuous year for Netflix, which has seen its stock plummet from $299 in July to only $73.60 now.
The firm, which provides film and TV shows on demand by DVD or streaming online, saw its share price plummet after it tried to charge its members separately for using the DVD or streaming service. It is now haemorrhaging members and, it would seem, cash.
In January, Netflix will go live in the UK and Ireland, a market it shunned for years.
The sale suggested Netflix's cash squeeze might last longer than it had anticipated, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles.
The company needed to spend more to make its streaming content stand out against a growing list of competitors, he said.
"It's essentially saying, 'We expect to continue to have cash-flow problems for a long time,'" said Mr Pachter, who has a "neutral" rating on the shares.
"It's a bad deal for shareholders and it looks desperate."
"Netflix is raising money now to strengthen the balance sheet," said a company spokesman. "We have no cash or general liquidity needs, and therefore have no immediate plans to use this capital."
In October, company chief executive Reed Hastings forecast 2012 losses because of costs to start service in the UK and here.
The company said free cash flow would lag net income for several quarters as it increased spending on content.
Netflix yesterday reaffirmed a forecast for "about flat" US streaming subscriber additions after a decline in October.
"If we are unable to repair the damage to our brand and reverse negative subscriber growth, our business will continue to be adversely affected," Netflix said in a filing. (Additional reporting by Bloomberg)