By Michael Dabaie

 

Netflix Inc. shares fell 3% to $420.55 in morning trading.

Netflix said Wednesday it would offer about $1 billion aggregate principal amount of U.S. dollar denominated and euro denominated senior unsecured notes in two series.

Netflix said it plans to use the proceeds for general corporate purposes, including content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions. The interest rate, redemption provisions, maturity date and other terms will be determined by negotiations between Netflix and the initial purchasers.

S&P Global Ratings said it assigned a 'BB-' issue-level rating and '3' recovery rating to Netflix's proposed senior unsecured notes.

The company said Tuesday its first quarter paid net membership additions were 15.8 million, versus 9.6 million in the year ago period.

"Like other home entertainment services, we're seeing temporarily higher viewing and increased membership growth. In our case, this is offset by a sharply stronger US dollar, depressing our international revenue, resulting in revenue-as-forecast. We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon," the company said in a letter to shareholders.

Revenue was $5.8 billion, up from $4.5 billion a year earlier. Per-share earnings were $1.57, up from 76 cents.

During the first two months of the first quarter, membership growth was similar to the prior two years. Then, with lockdown orders in many countries starting in March, many more households joined Netflix, the company said.

Netflix said its internal forecast and guidance is for 7.5 million global paid net additions in the second quarter. "Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown," the company said.

Netflix said that while its productions are largely paused around the world, it benefits from a large pipeline of content that was either complete and ready for launch or in post-production when filming stopped.

"For Q2, we're looking forward to releasing all of our originally planned shows and films (with some language dubbing impacts on a few titles)," Netflix said.

Stifel lowered its rating on Netflix shares to Hold

"While the timing of a potential return to normalcy remains unknown, we expect some form of trend reversal to materialize as lockdowns are lifted and a portion of recent demand proves to have been pulled forward. At current valuation levels, we see a more balanced risk/reward profile in NFLX shares with limited visibility to 2H numbers as lockdown-related demand may diminish and churn potentially accelerates," Stifel said in its note.

Wedbush said in a note that as Netflix subscribers consume an increasing amount of content during the period of in-home confinement, the company will struggle to produce new content to keep those same subscribers engaged over the second half of 2020. "The hole in its content portfolio will hit at the same time that competitor services are ramping up their own subscriber bases, and with competitive services from Viacom CBS, AT&T, Disney, and Comcast, the availability of licensed content will be sorely limited," the Wedbush note said.

 

Write to Michael Dabaie at michael.dabaie@wsj.com

 

(END) Dow Jones Newswires

April 22, 2020 10:45 ET (14:45 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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