Moody's Investors Service said that Netflix,
Inc.'s ("Netflix") announcement to increase subscription prices will not
impact its Ba3 Corporate Family rating and positive rating outlook.
Netflix announced that it plans to increase subscription prices by one
or two dollars later in the quarter. The global price increase will
impact new members initially and existing members will stay at current
rates for a generous time period before eventually being impacted by the
price increase. The move is not expected to have a material impact on
subscriber churn rates as we believe this time the company is being
particularly cautious in its approach by implementing a modest price
adjustment and delaying rate increases for existing customers. However,
we believe that new subscribers may want to take advantage of current
pricing levels and be grandfathered in at lower rates. Accordingly we
believe that the company could likely experience a moderate increase in
new subscriptions over the coming month. Looking ahead, we anticipate
the planned price hike will positively impact EBITDA and free cash flows
over the long run and allow the company greater flexibility to invest in
high quality content offerings.
Moody's also indicated that the company's 2014 first quarter earnings
are in line with expectations factored into its current ratings and the
positive rating outlook. Netflix reported a boost in top-line with year
over year revenues up 24%, helped by a 9% sequential growth in its
subscriber base, which stood at 48 million (international plus domestic
streaming subscribers) at 3/31/2014. Driven by good execution and a 21%
sequential increase in international subscribers (paid), the company
demonstrated remarkable progress in stabilizing its international
segment operations and curtailing international startup losses, which
improved by over 50% on a year over year basis. Based on the company's
solid Q1 results and expectations for continued growth momentum in the
remainder of the year, Moody's anticipates that over the coming
quarters, Netflix stands to position itself more solidly in the Ba
rating category and move towards credit metrics that are indicative of a
higher rating.
The positive outlook is supported by our belief that continued operating
improvements will enable the company to reduce consolidated
debt-to-EBITDA leverage from approximately 3.0x at 3/31/2014
(incorporating Moody's standard adjustments) to under 2.0x within the
next 18 months. Notably, LTM 3/31/2014 EBITDA has surpassed 2010 levels
(when the company was rated Ba2 and was a pure physical DVD rental
business), driven by consistent growth in streaming subscribers,
increased investments in premium content and original programming like
House of Cards and Orange is the New Black and successful launches in
international markets. Netflix's ongoing international expansion will
continue to create a drag on earnings and cash flows over the coming
years, but we expect that growth and maturing of early entry markets
will offset some of the negative impact of new market launches. Overall,
we believe that favorable operating trends seen thus far will continue
over the near to intermediate term and nullify the concerns over the
higher breakeven subscriber levels needed for the streaming business.
Market News and Data brought to you by Benzinga APIs© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
Posted In: NewsPress Releases
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in