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Netflix Will Sell $1 Billion Senior Notes as COVID-19 Home Confinement Fuels Global Subscriber Growth

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Netflix (NFLX) on Wednesday said it will sell $1 billion in senior notes, a day after the streaming-entertainment company reported first-quarter results that were driven higher by people staying at home around the world due to the COVID-19 pandemic.

The Los Gatos, California-based company said the dollar and euro-denominated notes will be sold in two series for general corporate purposes, including “content acquisitions, production, and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

Netflix said late Tuesday as it reported its first-quarter results that it finished the first three months of the year with $5.2 billion in cash on hand and has not drawn on its $750 million unsecured credit facility. “We have more than 12 months of liquidity and substantial financial flexibility,” it said. “Our financing strategy remains unchanged — our current plan is to continue to use debt to finance our investment needs.”

In the first quarter, the company said it added 15.8 million global subscribers, up from 9.6 million in the same period last year.

“At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term,” the company said in a letter to shareholders. “Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth.”

Revenue in the March quarter rose to $5.77 billion from $4.52 billion a year earlier, and per-share earnings surged to $1.57 from $0.76. Analysts polled by Capital IQ had expected $5.75 billion in revenue and EPS of $1.64.

Netflix in its letter said it expects net additions in the current quarter to slow to 7.5 million as stay-at-home orders come to an end. “Given the uncertainty on home confinement timing, this is mostly guesswork,” it said.

In a note on Wednesday, Wedbush Securities analysts Michael Pachter, Matthrew Breda, and Nick McKay said Netflix will “struggle to produce new content to keep those same subscribers engaged” in the second half of the year.

“The hole in its content portfolio will hit at the same time that competitor services are ramping up their own subscriber bases, and with competitive services from ViacomCBS (VIAC), AT&T (T), Disney (DIS), and Comcast (CMCSA), the availability of licensed content will be sorely limited,” the analysts said. They reiterated Netflix’s underperform rating and lifted their price target to $198 from $194.

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