Bonds Advice

Should you invest in Netflix bonds or shares?


Movie buffs can now invest in their passion directly because Netflix, the online streaming service, has unveiled plans to issue $2bn (£1.5bn) of bonds.

Netflix now has 149 million paying subscribers and has broadcast hit shows such as Stranger Things, Orange Is The New Black and The Crown.

The firm will announce the full details of the issue soon, but it is expected the bonds will pay 5.6pc, according to AJ Bell, a fund shop.

Other terms and conditions, including maturity dates and redemption rules, are yet to be confirmed.

Netflix says money raised will be used to invest in its content, as well as for general business spending. It will issue bonds in both dollars and euros. But should you buy them?

AJ Bell’s Russ Mould said: “As far as bonds go, this is one of the riskier options out there.”

According to reports, the bonds will mature in 10.5 years and cannot be bought back in that time. This means investors are locking their money away until at least 2029.

Then there is the question of what could happen to interest rates and inflation over the next decade. Returns of 5.6pc currently look very attractive today, but will be less appealing if central banks raise interest rates.

The mooted Netflix interest rate also outstrips inflation, currently 1.9pc.

Netflix is valued at $164.9bn, with $4.5bn in revenues by the end of Q1 this year, up from $3.7bn for Q1 2018.

But it also has rising levels of debt. It had $10.3bn of debt as of the end of March, up from $6.5bn at the end of the same period last year. It has also committed to spending $19.3bn on new films and shows, and needs these to be successful to sustain profits.

Mr Mould said "an unforeseen string of duds would leave the firm with huge liabilities and little or no cash flow with which to repay them".

Netflix also faces new competition in the form of Apple and Disney, which both launched online video options this month.

A Netflix statement said these entrants would “not materially affect” the firm’s growth because the three companies’ content would not overlap.

Netflix has issued bonds seven times before.

In October 2018 the firm issued $800m in ten-year bonds paying 6.38pc and €1.1bn in ten-year bonds with an interest rate of 4.63pc. In April 2017 Netflix sold €1.3bn of ten-year bonds, paying 3.6pc, and in October the year before $1bn in nine-year deals paying 4.37pc.

Investors also have the option to put their money into Netflix shares.

Mr Mould said this would be a better bet if Netflix’s share price continues to rise, but that otherwise bonds would offer more protection.

For the best of the Telegraph’s investment analysis, advice and expert opinion, plus columns from our stock-picker Questor, sign up to our weekly newsletter.  


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