On Tuesday, corporate bond research firm Gimme Credit maintained its Outperform recommendation on Netflix (NASDAQ:NFLX) bonds, specifically highlighting the 2030 notes, which are currently trading at a spread of +78 to the 5-year Treasury. The firm said the streaming giant's strategic focus on original content, supported by licensed material, is proving to be effective in driving revenue growth and subscriber engagement.
Netflix's investment in content, which amounts to $17 billion annually, has yielded impressive results, according to Gimme Credit. The streaming giant has consistently dominated the charts, with its offerings ranking as the #1 film in streaming for eight of the first eleven weeks of the year, and the #1 original series for nine of the same eleven weeks. This success is attributed to a mix of global and domestic content that resonates with a wide audience.
Furthermore, the corporate bond research firm notes that the company's revenue growth is projected to exceed 14% for the current year, a significant increase from the 6% to 7% growth experienced in the previous two years. They believe Netflix's initiative to crack down on password sharing supports the optimistic forecast, which is expected to contribute positively to the revenue stream.
In terms of financial performance, Netflix is outpacing its competitors with a substantial lead in subscribers, earnings, and free cash flow. The company has reversed its negative free cash flow from 2021, reaching an approximate $6 billion. This financial turnaround is accompanied by a rapid decrease in leverage and the accumulation of more than $7 billion in cash reserves, highlights Gimme Credit.
The firm's reiteration of the Outperform rating for Netflix's 2030 notes reflects the firm's confidence in the company's financial health and its strategic direction. The performance of these notes against the 5-year Treasury serves as an indicator of the market's positive reception to Netflix's robust content strategy and improved financial metrics.