Netflix credit to remain in ‘junk’ territory at Moody’s for at least a few more quarters

Moody’s Investors Service reiterated Netflix Inc.’s Ba1 credit rating, which is the highest non-investment grade, or “junk,” rating, following the streaming video company’s “weak” first-quarter results reported earlier this week. Netflix stock dropped 3.5% in afternoon trading, putting it on track for the lowest close since January 2018, after plunging 35.1% on Wednesday. The rating agency also affirmed the rating’s positive outlook, which suggests the next rating move would be an upgrade to investment grade. Moody’s said while it still expects subscriber growth in the second half of the year and for the full year, it believes there is “greater uncertainty” following first-quarter results. “[W]e also still believe that the medium- and longer-term credit outlook remains favorable for the company despite the cloud over the company from the fall from overheated equity market valuations for Netflix and the headlines that comes with it,” Moody’s said. “As a result, we will likely observe a few more quarters to determine the new trend lines and reset more specific expectations as well as evaluate the companies fresh new levers to grow revenue and free cash flows before considering raising the company’s credit ratings to investment grade.” While Moody’s rates Netflix credit as “junk,” S&P Global Ratings rates it BBB, which is two notches above the investment grade threshold. The stock has plunged 63.8% year to date, while the S&P 500 has lost 6.9%.

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