Looking for a lifeline.
Shares of Netflix traded lower after the company said it would be hitting the markets to raise $400 million in a stock and convertible note offering as it looks to build its cash position in the face of rising content costs. The prospectus for the offering indicated that the company expects to be unprofitable for 2012, after management had previously said it expected to be unprofitable only at the beginning of the year.
Credit Suisse said it expects the capital raised will dilute existing shareholders by about 10% but that it will strengthen the company’s balance sheet and improve its financial flexibility.
Separately, Canaccord Genuity Technology Analyst Jeff Rath re-initiated coverage on the stock with a bearish outlook. He notes that while the macro environment appears positive for Netflix, he believes the company faces numerous challenges. Some issues for the stock include: 1) He believes consensus estimates are too high and the company may have to raise capital (which it is); 2) Rath believes domestic competition has accelerated during Netflix’s recent stumbles; 3) International growth is not as large an opportunity as some investors might think, in his opinion; and 4) Evidence is building that the company may not be as accretive to U.S. content owners as originally thought.
Netflix (NFLX : NASDAQ : US$70.39), Net Change: -4.08, % Change: -5.48%, Volume: 14,992,084
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