November 22, 2011 / 4:16 PM / 8 years ago

Netflix Stock Plunges After Rental Giant Sells $400M in Stock, Debt

Netflix moved to give itself a capital infusion on Monday, selling $400 million in stock and convertible bonds, the Los Gatos, Calif. company announced. 

Half of that sum will be raised through the sale of common stock at $70 a share to mutual funds and accounts managed by T. Rowe Price Associates, while the other portion will be generated by the placing notes with funds affiliated with Technology Crossover Ventures (TCV).

Also read: Netflix's Streaming Dilemma: Too Fast, Too Cheap, Maybe Out of Control

The money will presumably be used to help the company meet the rising costs of streaming content and the continued financial burden of maintaining a DVD by mail business with its attendant postage fees. Netflix estimates that it will spend north of $3 billion next year for the rights to TV shows and movies. 

"With this additional capital from two long-term oriented investors, we have strengthened our balance sheet and remain focused on growing our streaming subscriptions and returning to global profitability after our launch of the U.K. in 2012," David Wells, the company's chief financial officer, said in a statement. 

However, the move roiled investors. Wall Street analysts have raised questions about the company's liquidity for months and the sale seemed to confirm some of those fears. 

Netflix shares tumbled to their lowest point since March 2010, closing Monday down 4.6 percent to $74.47. The stock continued to slide in after-hours trading.

The move comes after the company announced on Friday that it had locked up the rights to carry new episodes of the cult hit "Arrested Development," considered a shot in the arm to a company still reeling from subscriber defections over price increases and the loss of key streaming partner Starz. 

The debt offering with TCV required the company to sell off shares, the company said in an announcement. However, the company will not be charged interest on the bonds,  which are scheduled to mature in December 2018. The initial conversion price is $85.80 a share. Related Articles:  The Bluths Are Back: New 'Arrested Development' Episodes Coming to Netflix Streaming Breakdown! Starz Won't Renew Netflix Deal Netflix Blinks: Abandons Separate Qwikster Service Netflix's DVD Service's Twitter Foul: How a Pot Loving Profile Is Beating Qwikster

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