Research Update: Netflix Ratings Raised To 'BB' From 'BB-' On Improved Free Operating Cash Flow; Outlook Stable

Netflix is benefitting from accelerating subscriber growth and increased user engagement because consumers are spending more time at home due to the COVID-19 pandemic. While Netflix will likely generate positive free operating cash flow (FOCF) in 2020 due to delayed production stemming from the pandemic, we believe the longer-term impact from the pandemic will be to reduce the FOCF deficit in 2021 and to accelerate the FOCF break-even point. We are raising our ratings on Netflix, including the issuer credit rating, by one notch to 'BB', reflecting accelerated subscriber growth, improving margins, reduced cumulative FOCF deficits over the next two years, and the positive secular trends benefitting the streaming video on demand (SVOD) industry. The stable outlook reflects our expectation

...- Netflix is benefitting from accelerating subscriber growth and increased user engagement because consumers are spending more time at home due to the COVID-19 pandemic. - While Netflix will likely generate positive free operating cash flow (FOCF) in 2020 due to delayed production stemming from the pandemic, we believe the longer-term impact from the pandemic will be to reduce the FOCF deficit in 2021 and to accelerate the FOCF break-even point. - We are raising our ratings on Netflix, including the issuer credit rating, by one notch to '##', reflecting accelerated subscriber growth, improving margins, reduced cumulative FOCF deficits over the next two years, and the positive secular trends benefitting the streaming video on demand (SVOD) industry. - The stable outlook reflects our expectation that Netflix will continue its solid global operating performance. We expect margins to expand close to 300 basis points (bps) per year on average and for leverage to decline to about 3x in 2020 due...

Research Update