Video rental company Netflix Inc said late on Monday that it raised $400 million in fresh capital by selling convertible debt to long-time backer Technology Crossover Ventures and stock to funds managed by T. Rowe Price.
Netflix has lost about two-thirds of its market value since the company's shares touched a high of almost $300 in July.
The company, which had $159.2 million in cash and cash equivalents at the end of September, has struggled to renegotiate video content deals. It has also lost subscribers and warned of a first-quarter loss.
The $200 million note sale and the $200 million stock sale will help the company replenish its war chest.
When Netflix Chief Executive Reed Hastings said hey I'm going to double content spend in 2012, we couldn't see how it could happen. It was blowing up our model ... But if they really had to go out and double content spend, he had to do something to get the cash, UBS analyst Brian Fitzgerald told Reuters.
It's necessary for the company because they have to get some content ahead of the launches in the UK and Ireland.
As part of the agreement, TCV will receive zero-coupon notes, due in 2018, that convert to Netflix common stock at a price of about $85.80 per share.
Fitzgerald said the valuation of the private placement was indicative of the risk attached to the company's business model.
The problem with the stock is you have other deep pocketed technology companies like Amazon, Google, Apple and even the incumbent MSOs (cable companies) and companies like HBO Go, and they are all starting to get their content out just as ubiquitously as Netflix, he said. HBO Go is an online streaming HBO service.
I think that the riskiness to the model is baked into that $85 share price.
The deal required Netflix to raise at least $200 million by selling common stock to other, unaffiliated investors, according to a filing with the Securities and Exchange Commission.
It met that obligation by selling the T. Rowe Price funds 2.86 million shares at $70 per share.
Shares of Netflix fell 0.6 percent to $74 in extended trade on Monday.
TCV, a leading venture capital firm, has been an investor in Netflix for many years. TCV co-founder Jay Hoag is on Netflix's board.
TCV also has investments in Groupon, Facebook and Electronic Arts.
(Reporting by Himank Sharma in Bangalore and Alistair Barr in San Francisco; Editing by Maju Samuel, Steve Orlofsky and Carol Bishopric)