Gimme Credit Maintains Outperform Rating on Netflix's 2030 Notes

Gimme Credit, a corporate bond research firm, has maintained its Outperform rating on Netflix's 2030 notes. The firm cites Netflix's effective original content strategy, projected 14% revenue growth, and strong financial performance as key factors behind the rating.

Netflix's annual investment of $17 billion in content has yielded impressive results, with its offerings ranking as the top film and original series in streaming for several weeks. "Netflix's revenue growth has been driven by increased memberships and price hikes, though operating expenses have risen due to marketing and personnel costs," according to Gimme Credit.

The streaming giant reported impressive Q1 2024 numbers, with 15% year-over-year revenue growth, 54% operating income growth, and a 7 percentage point increase in operating margin to 28%. Netflix is repositioning itself to better reflect its investment grade status, focusing on a strong balance sheet, profitable growth, and dividend payments.

Netflix plans to cease reporting subscriber numbers from Q1 2025 but aims to reach 300 million global subscribers by then, with 40% of the 16% year-over-year subscriber growth coming from its ad-supported plan. However, the increasing divergence in membership plans and pricing, as well as the growing number of "savvy switchers" who strategically subscribe and unsubscribe, pose challenges for Netflix's revenue growth and retention efforts.

Why this matters: Netflix's strong financial performance and effective content strategy have solidified its position as a leader in the streaming industry. The company's shift towards profitability and its decision to stop reporting subscriber numbers reflect broader changes in the industry, where financial health has become the top priority.

Financially, Netflix is outpacing its competitors, with a substantial lead in subscribers, earnings, and free cash flow, which has reached an approximate $6 billion. The company has also accumulated more than $7 billion in cash reserves and reduced its leverage. Gimme Credit's reiteration of the Outperform rating for Netflix's 2030 notes reflects the firm's confidence in the company's financial health and strategic direction.

Key Takeaways

• Gimme Credit maintains Outperform rating on Netflix 2030 notes, citing strong content ROI.
• Netflix's $17B annual content investment yields top film and original series in streaming.
• Netflix reports 15% revenue growth, 54% operating income growth, and 28% margin in Q1 2024.
• Netflix plans to cease reporting subscriber numbers from Q1 2025, targeting 300M global subs.
• Netflix's financial health, with $6B in free cash flow and $7B in cash reserves, solidifies its industry leadership.