NEW YORK — Netflix wants a new supply of subscribers, but first it wants a chunk of change.
Online vidtailer on Friday announced a secondary public offering that will seek to raise $105 million through the sale of 3.5 million additional shares.
Offering, to be priced at $30, could be completed this week, bringing to roughly $335 million the amount the company will hold in its cash reserves.
Netflix played coy and said it would use the new capital for “general corporate purposes.” But Wall Street was abuzz Friday with talk of why Netflix needed the infusion.
Citigroup analyst Mark Mahaney suggested it was part of vidtailer’s plans to launch a downloading service.
If so, the move would demonstrate the seriousness of Netflix’s commitment to compete with the increasing challenge of studio services like Movielink and looming threat of Amazon.com — at a time when its ability to fend off that threat remains in question.
Unlike the studio-run services, Netflix must involve itself in the labor-intensive work of negotiating rights separately with each studio.
But with more than $300 million in reserves, no debt and a track record of using technology to create consumer demand, Netflix could soon be well positioned to form a viable movie downloading biz.
Still, there may be a more common reason for the offering.
Netflix may look unstoppable against a flailing old-media retailer like Blockbuster. In its earnings released last week, Netflix showed surprisingly prolific growth that now puts total subscribers at 5.3 million. Company said it continues its drive to hit 20 million subs over the next several years.
But with revenues just under $700 million last year, Netflix remains a fraction the size of Blockbuster, and the reason behind the move may be as simple as the desire to put away cash at a time when money is relatively easy to get.
It’s an especially well-timed move as Blockbuster suffers through a cash crunch that has seen it renegotiate its credit agreements several times over the last year.
Still, investors, either troubled by the need for more cash or the price of the offering — $30 was lower than the share price at the time of the announcement — fretted and sent the stock down 5% on Friday to $29.64.
The pessimism suggests the company’s need to move forward with downloading plans could have the consequence of dinging its status as a Wall Street darling.
Netflix share price nearly tripled over an eight-month period last year. New shares, even a relatively small number like 3.5 million, raise worries about share dilution.
The issuance of new shares also usually suggests a company does not expect to be acquired soon. And a potential acquisition, some experts feel, is what was keeping Netflix’s price so high in the first place.
But at a time when conglom execs are tearing their hair out over undervalued stock and starting buyback programs left and right, Netflix’s new offering may be sending the opposite message: It’s content with the share price right where it is.