Thursday, April 12, 2018

"Netflix Will Be Cash-Flow Positive by 2022, Moody’s Says"

It's good to have goals.
That said, there sure are a lot of companies that not only are not profitable, they are cash-flow negative.
$134.5 billion market cap, up $6.21/share (2.05%) so far today.

From Barron's Tech Trader Daily, April 11:
Moody’s Investors Service analyst Neil Begley this afternoon raised the firm’s rating on Netflix’s (NFLX) $6.5 billion of debt, predicting that continued growth in its user count will help the company’s leverage ratio—how much debt it maintains relative to its operating income—to drop to a more manageable level in the next two years, easing credit concerns.

The company’s corporate rating rises to “Ba3” from “B1,” wrote Begley, while its probability of a default rises to “Ba2-PD” from a prior “Ba3-PD."
The company’s debt-to-Ebitda is “high” at a current 7.3 times, writes Begley, but, with revenue set to rise by more than 20% in each of the next three years, he thinks that can drop to “comfortably under 5 times by 2020."

He thinks Netflix will reach “over 200 million subscribers” by the end of 2021, from what the Street is estimating is a current user base of 123 million subscribers at the end of March (per FactSet).
That rise in subs will improve margins and turn the company cash-flow-positive come 2022:

We expect the steady subscriber growth, together with gradual price increases will outpace the increasing investment in content and the upfront working capital spending on self-produced and owned programming, resulting in steadily improving margins. We believe that those margins will need to grow from the 7% range of 2017, to the low to mid 20% range to generate positive cash flows. As a result, we forecast the company becoming cash-flow positive in approximately five years....