The firm still owes between $10 and $15 billion, but it claims to have generated enough money to repay those loans while sustaining its massive content budget, according to the statement.
Does Netflix have a lot of debt?
Netflix had US$15.6 billion in debt at the end of March 2021, up from US$14.7 billion a year earlier. The image can be enlarged by clicking on it. Because of its cash reserve of US$8.40 billion, it has a lower level of net debt of roughly US$7.16 billion.
How Strong Is Netflix’s Balance Sheet?
Netlix has obligations of US$7.96 billion due within one year, and liabilities of US$19.3 billion after that, according to the company’s most current balance sheet It has $8.40 billion in cash on hand and US$807.0 million in receivables due within the next year to make up the difference. As a result, its liabilities exceed its cash and short-term receivables by $18.0 billion.
Netflix has a market valuation of US$236.3 billion, therefore it’s hard to assume that these liabilities pose a significant danger.
However, there are enough liabilities that we propose that shareholders keep an eye on the company’s balance sheet in the future.
This information is provided by two ratios: the debt-to-earnings ratio (DTE) and the debt-to-equity ratio (DTE). There are two ways to measure a company’s debt-to-EBITDA ratio: the first is net debt divided by EBITDA, and the second is how many times its EBIT covers interest expense (or its interest cover, for short). Depreciation and amortization charges are taken into account in this calculation.
A net debt to EBITDA ratio of just 1.3 shows that Netflix is not a reckless borrower.
A 7.6-to-1 interest coverage ratio is more than sufficient.
As a result of this, Netflix’s EBIT has increased by 80%, which reduces the risk of future debt repayments.
The balance sheet is where we get the most information about debt.
However, Netflix’s long-term profitability will determine whether or not the company is able to strengthen its financial sheet in the future.
Consequently, if you’d like to see what the experts have to say, you may find this free study on analyst profit estimates fascinating.
Finally, a company’s ability to repay debt depends on its ability to generate free cash flow. So the next logical step is to look at how much of that EBIT is actually matched by free cash flow, which is a simple calculation. This three-year period saw a significant decline in Netflix’s net operating free cash flow. Investors are no doubt anticipating a turnaround in that position in the near future, but its use of debt is certainly more riskier because of that.
Our View
EBIT to free cash flow conversion by Netflix was a major negative in this analysis, even though the other components were significantly better. We’re particularly taken aback by the company’s impressive EBIT increase. We believe Netflix is doing a good job of controlling its debt based on the above factors. As a result, we advise any stockholders to keep an eye on the situation. When it comes to analyzing debt, the balance sheet is the obvious place to start. This isn’t to say that every company doesn’t have dangers that go beyond the balance sheet. As a result, you should be aware of Netflix’s one warning indication.
For those investors who prefer not to take on debt when making stock purchases, we’ve compiled a list of the best net cash growth stocks for you to peruse right now.
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How in debt is Netflix?
Netflix has been disrupting the media sector for the last decade by taking a risk. Every year, it has spent billions of dollars acquiring licensed and original programming in order to expand its repertoire and become a substitute for traditional pay-TV in millions of homes. To pay for this material, Netflix has accumulated $15 billion in debt since 2011. The corporation says it has more than $8 billion in cash on hand to pay off its existing debt, which expires in 2021.
Since content investment has increased and the business has burnt more cash, Netflix critics like Wedbush analyst Michael Pachter have warned investors to be wary.
“Pachter told CNBC in June 2018 that Netflix had squandered more money each year since 2013. “As their spending needs grow, what happens when they suddenly find themselves in debt to the tune of $10.1 billion? People will begin to wonder, “Can this company repay us?” Their interest rate on loans will be up if that happens. Netflix will issue stock if they need to raise money. It’s at this point that investors will become alarmed.
How much long term debt does Netflix have?
Netflix owes $17.89 billion in total, with long-term debt at $17.19 billion and short-term debt at $699.13 million, according to the company’s financial statements as of July 22, 2021. When cash-equivalents of $7.78 billion are taken into account, the company’s net debt rises to $10.11 billion dollars.
Let’s have a look at some of the terms we mentioned in the previous paragraph. Part of a company’s long-term debt is due in the next year, while part of its current debt is due in the next year. Any liquid security with a maturity of 90 days or less is considered a cash equivalent. Long-term debt and short-term debt are subtracted from the total to arrive at the total debt.
Is Netflix running at a loss?
Profits more than doubled over the past year, despite the fact that Netflix lost subscribers. The first quarter’s net income of $1.7 billion represents a 140% increase over the first quarter’s net income of $700 million.
So what exactly is the issue? Profits climbed at a much faster rate than subscriber growth, and this looks to be the cause. Is Netflix going to have to pick between high earnings and strong subscriber growth if this dynamic is the new normal?
Will Netflix ever be profitable?
Netflix anticipates a positive cash flow in 2022 and beyond, even if it does not make a profit this year. An operating margin of 20% or above is expected for the entire year in 2022, according to the company’s forecasts.
How much is Apple in debt?
For a four-part issuance of debt with maturities ranging from seven years to forty years, Apple filed preliminary documents with the Securities and Exchange Commission (SEC) on Thursday. The size and timing of the offering were not specified by the corporation.
There is approximately $113.8 billion of Apple’s long-term debt, including current maturities. This is the result of a February offering that drew in $14 billion.
Who really owns Netflix?
- Reed Hastings, Netflix’s co-founder and CEO, transformed the way people watch television. Netflix, which went public in 2002, is owned by him to the tune of a tenth of a percent.
- He launched Netflix with fellow co-founder Reed Hastings in 1995, the same year he sold his previous firm to Rational Software, Pure Software.
- 183 million people across the world have access to the video-streaming service’s library of TV series and movies, as well as original programming.
- In the beginning, Netflix was a DVD rental service, but in 2007, it began streaming video.
- A $120 million donation was made by Hastings and his wife Patty in June of this year to the United Negro College Fund and two historically Black universities.
Why is Spotify in debt?
A variety of directions may be taken by SPOT in this situation, but it’s worth remembering that the company’s recent acquisitions were almost exclusively podcast-related.
The acquisition of podcast advertising and publishing platform Megaphone by Spotify for $235 million in cash was announced in November.
In November of 2020, Spotify will have spent more than $800 million on podcast-related acquisitions since February of 2019 thanks to its $235 million investment in Megaphone.
On February 14th, Spotify paid 136m ($154m) for New York-based Anchor FM, which allows users to both create and distribute podcast material, and Gimlet Media, a podcast producer, for a total purchase price of $195m. On April 2nd, Spotify paid $55m for Parcast, a podcast distribution platform.
The Ringer, a sports media outlet created by Bill Simmons, was purchased by Spotify for approximately $200 million in a deal announced in February 2020.
SPOT has spent a lot of money on exclusive podcast content and talent arrangements in the previous two years, including $100 million with Joe Rogan at the beginning of last year and $50 million with Harry and Meghan at the end of 2020.
How much is Disney in debt?
Walt Disney had US$55.8 billion in debt in July 2021, down from US$64.4 billion a year earlier, as you can see in the chart below. In contrast, it has $16.1 billion in cash, resulting in net debt of around US$39.8 billion.
How Strong Is Walt Disney’s Balance Sheet?
Our latest balance sheet shows that Walt Disney has US$27.4 billion in short-term obligations and an additional US$74.2 billion of long-term liabilities. It has $16.1 billion in cash and $13.4 billion in receivables due during the next year to offset these obligations. As a result, its liabilities exceed its cash and short-term receivables by $72.2 billion.
The fact that Walt Disney has a market value of US$315.2 billion means that if the need arises, the company might obtain money to improve its balance sheet.
There is no doubt that we must evaluate carefully if it is able to handle its debt without diluting itself.
The net debt divided by EBITDA and EBIT divided by interest expense are the two methods we use to gauge a company’s debt burden in relation to its earnings (profits before interest, taxes, depreciation, and amortization) (its interest cover).
Due to the fact that net debt to EBITDA is taken into consideration as well as actual interest expenses, this method has several advantages (with its interest cover ratio).
Walt Disney’s lackluster interest coverage (just 1.7 times) and alarmingly high net debt to EBITDA (5.2 times) took a toll on our faith in the company.
As a result, we’d classify it as having a high debt burden.
And to make matters worse, Walt Disney’s EBIT decreased by 62% in the previous year. If profits continue to rise at this rate for the foreseeable future, paying off the debt will be as difficult as rolling a snowball. The balance sheet, without a doubt, provides the greatest information concerning debt. However, Walt Disney’s capacity to maintain a healthy balance sheet in the future will be determined primarily by its ability to generate future earnings. So, if you’re curious about what industry experts believe, this free study on analyst profit estimates can be of use to you.
Finally, a business can only pay off its debts with physical currency, not accounting earnings, as has been previously stated. As a result, we always keep an eye on how much of the EBIT we generate is actually free cash flow. There has been a 38 percent reduction in the quantity of Walt Disney’s free cash flow during the past three years. Indebtedness is more difficult to manage because of the weak cash conversion.
As a result of Walt Disney’s interest cover and its EBIT growth rate, we were hesitant to buy the company on the basis of these numbers alone.
Its total liabilities, on the other hand, aren’t terrible.
Overall, it’s clear to us that Walt Disney is putting the corporation at danger through its excessive use of debt.
Even if everything goes according to plan, there is a greater chance of long-term losses associated with this debt.
The balance sheet, without a doubt, provides the greatest information concerning debt.
However, not all investment risk is contained in the balance sheet. To provide you an example, we’ve found one danger flag for Walt Disney.
It’s worth checking out this free list of businesses that can grow profits without the burden of debt if you’re interested in investing.
This Simply Wall St. article is broad in scope. Our articles are not meant to provide financial advice and are based solely on past facts and expert estimates. It is not an advice to buy or sell any stock, and it does not take into consideration your financial condition or your aspirations. You can expect long-term, basic data-driven analysis from us. Please keep in mind that our research may not take into account recent price-sensitive company announcements or qualitative information. Any stocks discussed in this article are not owned by Simply Wall St.
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Who is the CEO of Netflix?
Other corporations, on the other hand, may not pay a dividend for a long time (or ever). In the early stages of a company’s development, reinvesting extra cash rather than returning it to shareholders is common. When it comes down to it, every dollar that shareholders receive in dividends reduces the company’s cash flow.
A excellent example of this is Netflix (NFLX), which has not paid a dividend since it went public in May 2002. Non-dividend paying equities aren’t necessarily a bad idea for investors. Growth companies like Netflix can be a good choice for investors who are more interested in long-term growth than current income. Over the previous five years, Netflix shares have returned an annualized 43 percent to investors, which is a massive return for those who invested.
Many computer companies have begun paying dividends in the last decade as they have grown and are now making significant profits. As a result, investors may ask if Netflix would ever pay out an annual dividend to shareholders.
Business Overview
A media conglomerate, Netflix has over 200 million users in more than 190 countries. While Netflix provides a vast selection of second-run television shows and movies, the firm also creates its own original material.
Subscribers received DVDs as a thank you gift when they signed up for the service. In recent years, the company has changed its focus to Internet streaming services. Netflix subscribers have access to a vast library of television shows, documentaries, and feature films from practically every genre. To further its success in building its subscriber base at a rapid rate, Netflix has invested extensively in its own original content.
Over the years, this has resulted in a massive increase in revenue. During the period from 2016 through 2020, Netflix’s annual revenue nearly tripled, reaching $25 billion in 2017. Although membership growth has slowed in recent years following such a long period of outsized expansion, this is to be expected.
Earnings per share increased from $0.43 in 2016 to $6.08 in 2020, according to the company’s projections. Investors may imagine Netflix might consider paying a dividend to shareholders in light of this increase, but Netflix has not done so to date. In part, this can be attributed to the fact that the corporation isn’t making a lot of money. Netflix is expected to earn $10.38 per share in 2021, which equates to an earnings yield of 1.8 percent.
To achieve a dividend yield of 1.8 percent, the firm would have to distribute nearly all of its annual earnings-per-share, which of course it would not do because that would deprive the company of cash to invest in growth and debt repayment, which is why it would not do so. Since Netflix’s content costs are so expensive, the company’s profits yield is low and it does not pay a dividend.
Reasons For Paying A Dividend
Dividends are an important aspect of many organizations’ capital allocation strategies. Coke and Johnson & Johnson are two examples of dividend Aristocrats that have increased their dividends for numerous decades in a row. As a matter of fact, both Coca-Cola and J&J are members of the exclusive Dividend Kings list.
There has been a dramatic increase in the number of corporations that have paid dividends in recent years. Technology companies, for example, used to spend a lot of money to build their company, but now they utilize dividends as a way of returning cash to shareholders. To satisfy their shareholders’ demand for a dividend, companies like Apple (AAPL) and Cisco Systems (CSCO) have started paying dividends in the previous decade.
It’s not hard to see why these investors are looking for dividends from their investments. During a slump in the stock market, dividends act as a safety net for investors. Investors who reinvest dividends have the opportunity to buy more shares at a lower price, increasing their dividend income overall. Returns for shareholders only increase when the stock market rises again.
For retirees, dividends are an important source of income. It is possible for retiring investors to recoup some of their lost income through dividends. Expenses continue to accrue even if a person is no longer getting a paycheck. As a result, dividends can be a crucial part of a retirement plan.
When it comes to dividend stocks like Coca-Cola and J&J, however, Netflix and other fast-growing companies still need to spend a lot of money on content in order to develop, unlike more established corporations. If Netflix wants to grow its subscriber base in the future, this is a must-have expense.
Amazon (AMZN), YouTube, Hulu, and The Walt Disney Company (DIS) are all competitors in the entertainment industry, and it is probable that spending rates will only climb from here. Netflix may never pay a dividend to stockholders because of this.
Will Netflix Ever Pay A Dividend?
Paying a dividend has a number of advantages, but it can also have disadvantages. A dividend payment necessitates sufficient cash flow to cover the payments. If a company, like Netflix, does not have a steady stream of free cash flow, it will be difficult for it to make a quarterly dividend payment to shareholders.
Revenue per share is predicted to top $10 by the end of the decade in 2021. A dividend would be a viable option for the company, but Netflix continues to spend its cash flow for expansion projects, thereby increasing the company’s customer base.
Netflix has been unable to create positive free cash flow growth as a result of this. For the first time in Netflix’s history, the business plans to produce a positive free cash flow for the year.
Debt markets are also necessary for Netflix’s spending because of the company’s huge capital expenditures. One more impediment to a dividend payment has been added to the company’s financial sheet. For the most recent quarter, Netflix had $14.9 billion in long-term debt, compared to $7.7 billion in cash and equivalents.
Netflix’s ability to pay shareholders a dividend has been hampered by this increase in interest-bearing debt. Netflix’s investment spending and debt repayment are more important to management than a dividend, so a dividend may not be the best option for the company.
Final Thoughts
A company’s capital allocation strategy is not set in stone. An investment policy can be altered over time. Paying a dividend may become an option for a company as it matures. In order to attract new investors and reward current shareholders, management may decide that a dividend is in the best interest of the company.
It is possible, but not likely, that Netflix may follow Apple, Cisco, and others in deciding to pay a dividend in the future.
As of today, Netflix has a lot of competition, so it has to spend all of its money on original programming. Investors shouldn’t expect dividend payments from the corporation any time soon because of the company’s enormous debt load.
It’s still possible to make a solid investment in Netflix, for a variety of reasons. Subscribers and revenue are increasing as the company’s streaming service becomes more popular throughout the world. As a result of these factors, Netflix has the potential to continue to be an attractive investment. Netflix, however, is unlikely to ever pay a dividend because of its high capital requirements and high debt levels.
Other stocks that don’t now pay dividends can be found in the following articles:
