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New competition also means Netflix will likely have less licensed content to round out its library. Disney, for example, has said it is pulling its content from Netflix ahead of the release of its service.
It’s making some big investments with that money. Netflix recently poached TV giants Shonda Rhimes and Ryan Murphy to make exclusive content, for example.
Netflix said last week that it expected negative free cash flow about about $3 billion this year, and its expectations for next year are similar. Free cash flow measures how much cash is generated after the company covers investments in its business.
Shares of Netflix stock shot up about 8% the day after the company reported earnings last week, but the price has since fallen back down.
Moody’s assigned the latest offering a BA3 or “junk” rating, but added that it expects Netflix to eventually be able to pay off its debts “as the transition from licensed content to produced original content levels off and newer international markets begin to contribute to profits and overall margins improve.”
The firm said Netflix’s strategy of building out its own original content library has “positive long-term implications,” adding that a library of owned content instead of just licensed content is valuable to both consumers and investors.
There are risks, though. Moody’s said it could downgrade Netflix even further if its negative cash flow levels continue to be high, or if competition starts eroding the company’s subscriber numbers.
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