Netflix raised $400 million 11/21 as part of an effort to recover from a customer backlash that has battered its stock. The decision to issue more debt and stock may raise some investors’ hackles still worried about Netflix’s ability to recover from a crisis triggered by its decision that customers who want streaming and DVDs would have to pay $7.99 a month for each service, a 60% increase for people who previously got both.
The stock has fallen out of favor since hitting a high of nearly $305 in mid-July. That was around the same time Netflix announced it would be raising prices, so it could afford to pay movie and TV studios more money for the rights to stream video over high-speed Internet connections. The price increase took effect 9/1.
The result was subscribers started to abandon Netflix en masse. Another strategic blunders included a price hike and the failure to renew its streaming deal with Liberty Starz. In October, Netflix reversed its decision to split its mail-order DVD service from its Internet streaming and will continue to run both from a single website.
The revolt worsened when Netflix in September announced a since-aborted plan to spin off its DVD-by-mail rental service into a separate website called Qwikster. The result: a loss of 800,000 subscribers during the July-September period with more defections still piling up. Netflix ended September with 23.8 million U.S. subscribers.
The recent customer exodus is expected to saddle Netflix with a loss next year as it tries to rehabilitate its image and pay for an expansion in Latin America and Great Britain. It will be the first time that Netflix has suffered an annual loss in a decade.
As well, Netflix has signed multi-year contracts requiring it to pay $3.5 billion for the rights to stream Internet video, and anticipates those long-term costs to rise during the next year.
Netflix issued $200 million in convertible notes to Technology Crossover Ventures, one of its biggest stockholders. The debt offering required Netflix to raise another $200 million by selling more of its shares by 11/28. Netflix fulfilled that requirement by selling 2.86 million common shares at $70 apiece to mutual funds and other accounts managed by T. Rowe Price Associates. The stock sale was completed at a 6% discount from Netflix’s closing price of $74.47 per share Monday. The company had 52.5 million outstanding shares as of 9/30, per The AP.
The convertible notes, which are scheduled to mature in December 2018, won’t require Netflix to pay interest. Technology Crossover Ventures instead will have the right to turn the notes into stock valued at $85.80.