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On Tuesday, the research firm raised its credit rating for the video streaming giant to BB, from BB-, with a stable outlook, as it pointed to increased subscriber growth and higher consumer usage as TV viewers sheltering during the pandemic increasingly embrace the streaming platform.
The result is S&P Global anticipating positive free operating cash flow this year as Netflix delays production expenditures amid location shooting shutdowns, and eventual lower debt loads and profitability. “The stable outlook reflects our expectation that Netflix will continue its solid global operating performance,” with improved margins and credit metrics, S&P Global said in a statement.
The Netflix management has promised that 2019 marked a peak in its free cash flow losses with $3.1 billion, and projected an improvement to a $2.5 billion deficit in 2020.
The firm pointed to Netflix recently adding 26 million subscribers during its second quarter financials, compared with 12 million in the same period last year, as cord-cutting impacts traditional pay TV providers. S&P Global forecast Netflix will add in all 35 million net subscribers in 2020, marking the first time it exceeds 30 million customer additions in a fiscal year.
The streaming giant gained 27.8 million subscribers in 2019, down from its peak addition of 28.6 million in 2018, amid new competition.
“The accelerated subscriber growth is driving stronger-than-expected operating performance because Netflix is able to drive significant operating leverage,” S&P Global argued. The firm also addressed investors anticipating Netflix adding fewer subscribers in the second half of 2020 and into 2021 after enjoying an initial pandemic-era bump in customer growth.
“While we don’t expect the same level of operating improvement in 2021 as subscriber growth slows and content investments ramp back up, the company’s financial metrics will be materially better than we had previously forecast,” S&P Global forecast, as it added Netflix will maintain its streaming space leadership.
With Hollywood conglomerates all pushing into the streaming space, Wall Street has kept close tabs on Netflix’s subscriber and financial trends.