Moody’s Investors Service raised its credit rating on Netflix Thursday to Ba1 -- one notch below investment grade -- adding that despite fears that lockdown-related customer growth could wane, the momentum should continue throughout the year.
Pandemic lockdowns helped push Netflix subscriber growth to record heights in 2020 -- fueled by a second half customer surge -- and that growth should continue as entertainment options remain limited, Moody’s senior VP Neil Begley said in his report.
"The performance of Netflix in the second half of 2020 materially exceeded our forecasts at the time we placed a positive outlook on the ratings a year ago," Begley wrote. “These favorable developments are pulling forward the credit improvement trend by as much as another year and have resulted in a two-notch upgrade and maintaining a positive outlook.”
The upgrade brings Netflix’s long-term credit rating one notch below investment grade, which would mean lower interest rates and better access to capital markets. Netflix has about $14 billion in long-term debt and has pledged to keep its leverage in the $10 billion to $15 billion range as it generates more cash.
The SVOD pioneer added about 8.5 million U.S. and international subscribers in Q4 2020, far outpacing its own prediction of 6 million additions. For the full year, paid net subscriber additions were 37 million, a record for the company. Those increases came despite a price increase implemented in October that raised the cost of the most popular Netflix subscription from $12.99 to $13.99 per month.
Netflix is scheduled to release its first quarter results on April 20. When it released Q4 results in January, the company issued guidance that it expected to add about 6 million customers worldwide in Q1.
Begley expects subscriber additions to remain volatile quarter-to-quarter as they have in the past, adding that a leaner content pipeline in the early months of the year could affect subscriber growth until production catches up.
“But we also believe that the medium and longer-term outlook remains very favorable for the company as it continues to build on its significant scale to penetrate global addressable homes of over 1.5 billion, sustaining competitively low cost per viewing hour leadership, growing average revenue for members, and reinvesting in even more content as it benefits from this virtuous cycle,” Begley said.
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