Shares of Netflix (NFLX) are down $1.67, or 2%, at $72.80 after the company late yesterday said it would raise $400 million in stock and debt offerings and forecast losses through next year in contrast to the Street’s expectation for a profit.
The Street offers one ratings action today, that I can see, from Canaccord Genuity’s Jeff Rath, who re-initiated coverage of the stock with a Sell rating, citing “numerous challenges,” such as accelerating losses of subscribers, rising content costs, and greater competition.
Rath appears not to have completely reset his estimates, however, as for next year he is estimating a profit of 67 cents on revenue of $3.6 billion.
Netflix is going to need cash, writes Rath, with free cash flow possibly amounting to a negative $120 million one the next two to three quarters, and with a cash balance of just $165 million at the end of last quarter.
Cowen & Co.’s Jim Friedland, reiterating a Neutral rating, is similarly concerned about the company’s liquidity: “We believe the offering signals that the cash outflows necessary to fund the company’s international streaming expansion are greater than initially expected.”
Friedland cut his 2012 estimate to a loss of six cents a share on revenue of $3.28 billion, down from a profit of $1.10 on revenue of $3.29 billion.
David Miller with Caris & Co. reiterates an “Below Average” rating on the stock today, cutting his 2012 subscriber estimate to 33.1 million from 35.3 million, while chopping his financial estimate to 66 cents profit on revenue of $3.7 billion, down from $3.25 per share on revenue of $4.09 billion previously.
Given what he estimates as being $2.5 billion in content costs in the first half of next year, Miller thinks the “rhetorical message” of the capital raise is that the “effects of its Q3 public relations nightmare have not stemmed sub-scriber defections, at least not in the near term.”
Lazard Capital’s Barton Crockett reiterates a Neutral rating, writing that the cash raise is being described by the company as an “insurance policy,” but that it’s really hard to believe management’s take on things given “the recent history of quick outlook changes.”
Crockett sees this capital raise as being the “big comeuppance”:
After spending $734.26M over the last 11 quarters to buy back 10.86M shares at an average price of $67.64, including 216K shares repurchased at an average price of $238.06 in 2Q11 and 182K at an average price of $217.59 in 3Q11, and saying on its 3Q11 earnings call that it has sufficient capital for its business, Netflix post close Tues. announced plans to raise $400M from issuance of new stock and a convert.
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