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COMMUNICATIONS: Netflix Curve Tightens On Strong Report

COMMUNICATIONS
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Netflix curve is 3-5bps tighter following last night’s earnings. 

  • Not many good direct €IG comps for Netflix. Entertainment names WBD, WMG, UNIMUS are the closest though are lower rated and don’t face the same growth dynamics. CMCSA operates a streaming service though it’s a smaller part of the business.
  • The curve still screens as attractive vs. the BVAL single-A corps curve with high growth rates that many names this highly rated lack and given rating upside.
  • The Moody’s upgrade seems a given; we also think further upside exists over the LT - S&P double-notch upgraded over the summer so the bar is quite high but it’s clear that Netflix is moving in the right direction.
  • S&P are looking for growth over 10% (already baked into expectations with this report to drive consensus upgrades) with an op margin towards 30% (again baked into consensus) while maintaining leverage <1x and avoiding more aggressive FinPol.
  • We calc gross/net EBITDA leverage 0.1x lower to 1.5x and 0.6x (no view on adjustments) and note that Netflix is prioritising internal growth via content spend as opposed to acquisitions. Payouts are to increase but will presumably be funded via FCF with minimal leverage impact in line with recent policy.

 

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Netflix curve is 3-5bps tighter following last night’s earnings. 

  • Not many good direct €IG comps for Netflix. Entertainment names WBD, WMG, UNIMUS are the closest though are lower rated and don’t face the same growth dynamics. CMCSA operates a streaming service though it’s a smaller part of the business.
  • The curve still screens as attractive vs. the BVAL single-A corps curve with high growth rates that many names this highly rated lack and given rating upside.
  • The Moody’s upgrade seems a given; we also think further upside exists over the LT - S&P double-notch upgraded over the summer so the bar is quite high but it’s clear that Netflix is moving in the right direction.
  • S&P are looking for growth over 10% (already baked into expectations with this report to drive consensus upgrades) with an op margin towards 30% (again baked into consensus) while maintaining leverage <1x and avoiding more aggressive FinPol.
  • We calc gross/net EBITDA leverage 0.1x lower to 1.5x and 0.6x (no view on adjustments) and note that Netflix is prioritising internal growth via content spend as opposed to acquisitions. Payouts are to increase but will presumably be funded via FCF with minimal leverage impact in line with recent policy.

 

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