Netflix sale of shares may be step toward movie downloads
Published 9:00 pm Friday, April 28, 2006
LOS GATOS, Calif. – Online DVD rental pioneer Netflix Inc. said Friday it will raise $105 million for its expansion plans by selling an additional 3.5 million shares at $30 each.
The Los Gatos, Calif.-based company said in Securities and Exchange Commission documents that it may use the money to finance acquisitions or to develop new technology to complement its booming rental service. Netflix expects to complete the offering May 3, adding to its current cash holdings of $228 million.
In a research note, Citigroup analyst Mark Mahaney predicted Netflix most likely is trying to build a nest egg for a new service that will allow its nearly 5 million subscribers to download movies for immediate viewing instead of having to wait for DVDs to arrive in the mail.
Netflix CEO Reed Hastings told analysts earlier this week that the company will provide more details about its “on-demand” service before year’s end. Hastings emphasized DVD rentals will remain Netflix’s growth engine for at least five more years and perhaps longer.
The company set the price of its latest offering slightly below the current market value, causing its shares to decline $1.65, or 5.3 percent, to close at $29.64 on the Nasdaq Stock Market.
Netflix’s stock has more than tripled from its May 2002 initial public offering price of $7.50.
Most Netflix subscribers pay $17.99 per month to rent as many as three DVDs simultaneously. After watching a movie, customers return the discs in a postage-paid envelope. Netflix then sends out the next available DVD on a subscriber’s online wish list.
The concept is rapidly changing the way people watch movies, prompting video store chain Blockbuster Inc. to launch a similar service that has prompted Netflix to sue for alleged patent infringement.
With 1.3 million subscribers, Blockbuster’s online service lags well behind Netflix’s.
