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Netflix Eyes High Yield Mart as Bonds Fall Amid Lackluster Subscriber Growth

Bonds backing Netflix (Nasdaq: NFLX) fell late yesterday, alongside a sharp decline in shares of the streaming media giant, after the company reported second-quarter subscriber growth of 5.2 million users—or one million viewers shy of its guidance of 6.2 million.

Revenue for the period of $3.907 billion was 0.8% below analyst forecasts based on consensus data compiled by S&P Global Market Intelligence, while adjusted EBITDA of $563 million topped consensus expectations by 2.6%.

The company’s 5.875% bullet notes due November 2028 and 5.875% notes due February 2025 were off 1.625 points and one point, respectively, after today’s closing bell, changing hands on either side of 100.25 and at 102, according to MarketAxess.

Netflix placed a $1.9 billion offering of the 5.875% notes due November 2028 in April at T+291 via a Morgan Stanley–led bookrunner group. The issue’s spread indications after the bell today were on either side of T+300, or roughly 25 bps wider month to month.

The company also said it is again eyeing the high-yield mart for a new round of capital raising.

“While interest rates have risen and the federal tax rate is now lower (reducing the tax shield on interest costs), we judge that our after-tax cost of debt continues to be lower than our cost of equity, so we anticipate that we’ll continue to finance our capital needs in the high-yield market,” the company said in today’s statement.

Netflix’s streaming revenue in the second quarter climbed 43% from the previous year, driven by a 26% increase in average paid memberships and a 14% rise in average selling price. The company said its operating margin of 11.8% widened 720 bps year-over-year, contributing to a 262% growth in operating income in the period.

“We had a strong but not stellar Q2, ending with 130 million memberships,” Netflix said, adding “in some quarters we will be high and other quarters low relative to our guidance. This Q2, we over-forecasted global net additions which amounted to 5.2m vs. a forecast of 6.2m and flat compared to Q2 a year ago, as acquisition growth was slightly lower than we projected.”

Netflix is a Los Gatos, Calif.–based global streaming media provider. — James Passeri/Jakema Lewis