Swan Lake, MS 11/22/2011 (StreetBeat) – Netflix (Nasdaq:NFLX) announced on Monday several transactions and a troubling 2012 outlook, a sign of the company's deteriorating performance and impact on its liquidity.The company raised $200 million through the registered sale of common stock to T. Rowe Price and $200 million through a private placement of convertible notes to Technology Crossover Ventures.
Netflix Chief Financial Officer David Wells said these transactions will strengthen the company's balance sheet. But Janney Capital Markets analyst Tony Wible said the moves revive liquidity concerns.
"We believe this dilution reinforces our concerns on Netflix's accounting treatments that we maintain overstate its cash flow..." Wible wrote in a note. "We continue to believe ... that the disparity in Netflix's accounting and the rising cost of content forces it to access capital and raise prices."
Netflix also disclosed that it expects to incur a consolidated net loss in 2012 due to flat revenue and an increase in international investment. The company previously only said that it expected to be unprofitable on a global basis for a few quarters starting in the first quarter of 2012. Wall Street had been expecting 2012 full-year earnings of $1.11 a share.
Wible noted that the issuance raises a fresh batch of questions.
"Investors need to ask why one of the largest subscription-based platforms in the world needs capital. The lack of profitability on almost 23 million global streaming subscribers suggests that this business may not be as lucrative as the bulls believe."
Netflix is raising capital after spending hundreds of millions of dollars repurchasing stock.
"This dynamic reinforces our view that Netflix has been buying stock to offset the dilution from its large issuance of equity to its management team, which has aggressively sold the stock with many options priced as low as $1.50 per share," Wible wrote. "The CEO continues to own no shares directly, although we are encouraged to see that he has stopped selling stock as of early October."
StreetBeat Disclaimer
Content is becoming more and more expensive which is making the entertainment industry that much harder to compete. Netflix seemed to put itself through a series of events that have put them at risk. To go from one of the fastest growing companies down to possibly spending 2012 without turning a profit is amazing. Netflix will have to watch out for up and coming services like the Blockbuster Movie Pass from DISH Network since it offers similar services, but in fact offers more. Regardless of whether or not I work for DISH, it’s obvious that the Blockbuster Movie Pass holds greater value because of their larger selection of Blu-ray’s and video games. Netflix may not completely lose out because of their poor business choices this year, but if they want to keep up with the competition, they had better hope to get the ball rolling sooner rather than later.
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