Netflix Double Notch Upgrade At S&P

New Rating: Baa2[P]/A[S] EUR bonds 1-2bps tighter

• •Double notch upgrade on improved performance, revenue growth, and margin expansion, reducing leverage to 1x from 1.6x in 2022.
• •S&P see revenue growth of 10-14% this year (vs. company guidance of 14-15% and BBG consensus of +14.8%) and +10% in 2025 (vs. BBG consensus of +12.2% driven by increased subscribers and monetization through price hikes and advertising.
• •Note the change in financial policy after Q1 results to “solid IG rating” from “IG rating” while S&P see no negative in the removal of the USD 10-15bn gross debt target. Lack of interest in large-scale acquisitions and leveraged buybacks also supportive.
• •S&P-adj leverage at 1x as of 30 June and is expected to remain around here in the absence of acquisitions. FOCF seen at USD 6N despite a planned content spend of USD 17bn in 2024. Continued strong cash flow supports potential smaller acquisitions.
• •Upside pressure on leverage sustained <1x, successful build of a scaled ad platform that contributes >10% of revenue and op margin approaching 30% in next 2-3yrs.
• •Downside pressure on revenue declines or leverage >2x.