Netflix received a two-notch upgrade to BBB from BB+ by S&P with a stable outlook. The S&P upgrade makes Netflix a rising star, a title given to companies whose ratings have been upgraded to investment grade rating from junk. S&P cited Netflix’s improving margins and positive cash flow expectations as reasons for the upgrade. In addition, the stable outlook on Netflix reflects S&P’s expectation that the company will maintain market leadership despite the increasingly competitive over-the-top (OTT) landscape.
S&P has taken an improved view on Netflix’s business relative to its competitors as Netflix continued to scale and build its content library, and moderated its expansion in content spending. The credit agency forecasts that Netflix will generate positive free operating cash flow starting in 2022. The credit rating agency added that Netflix’s new financial policy guidance that features a lower proportion of content investment would further support its improving credit metrics. Commenting on Netflix’s debt, S&P said, “it would no longer need to access the debt markets to fund its operations, would use excess cash for share repurchases, and would maintain gross debt of $10 billion-$15 billion over the longer term”. S&P views that Netflix “will manage its level of cash content spending to balance its subscriber growth and cash flow generation”.
Netflix’s 4.375% 2026 is trading at 111.57, yielding 1.96%
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