20% Of Netflix Streaming Content Could Be Self-Produced By Year-End

Rosenblatt Securities' Alan Gould maintains a Neutral rating and $155 price target on Netflix, Inc. NFLX's stock after the company announced its entry into China and raised 1.3 billion euros in a debt raise.

Debt Raise

Netflix raised 1.3 billion euros in a 10-year debt raise at 3.625 percent, which the analyst noted is "very attractive" at just 128 basis higher than treasuries. This is also favorable when factoring in the company's 10-year debt raise last October at 4.375 percent, which at the time was 260 basis points higher than treasuries.

Gould stated that the debt market is pricing Netflix's offering at a better rate than its B+ credit rating implies. As such, this makes it "obvious" why Netflix is financing growth initiatives through the credit market as opposed to issuing stock.

In fact, the company is expected to return to the debt market again within the next six to nine months. As such, net debt to adjusted EBITDA of 2.5x at the end of March could max out at 3 to 3.5x by the end of the year, but the ratio will decline afterward, as the company's adjusted EBITDA will grow at a faster rate versus its debt balance.

Netflix In China

According to Gould, Netflix's $8 per share surge in response to its entry into the Chinese market is an "over-reaction." The analyst believes the move will be "helpful for branding." At the end of the day, the financial impact will be "immaterial" — the amount received will be booked as a contra-expense item instead of revenue.

20% Of Content Could Be Self-Produced

Gould also highlighted a part of Netflix's 10-Q that may be flying under the radar, under-reported by the Street.

Gould noted 14 percent of Netflix's $12 billion of net streaming inventory is self-produced (i.e., original content and not licensed), which marks an increase from 8 percent just nine months ago.

The analyst is estimating this figure will be "close to" 20 percent by the end of the year.

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