Investing.com -- Moody’s Ratings has upgraded the senior unsecured notes ratings of Netflix, Inc. (NASDAQ: NFLX ) to A3 from Baa1. The company’s outlook continues to be positive, according to the announcement made on May 01, 2025.

Emile El Nems, a VP-Senior Credit Officer at Moody’s Ratings, stated that the upgrade is a reflection of Netflix’s years of excellent execution, its strong competitive position, expanding profitability, and predictable free cash flow. Despite the uncertain economic environment, Moody’s believes that Netflix will maintain strong revenue growth, improve operating margins, and generate more than $8 billion in free cash flow annually, all while adhering to conservative financial policies.

The A3 ratings given by Moody’s are a testament to Netflix’s solid operating performance, scale, competitive position, predictable free cash flow generation and exceptional credit metrics. The company, with over $40 billion in annual revenue on a Last Twelve Months (LTM) basis, is the world’s largest content streaming service provider. Approximately 44% of its revenue comes from the US and Canada, 32% from Europe, Middle East and Africa (EMEA), 12% from Latin America, and 12% from the Asia-Pacific region.

The ratings agency also noted Netflix’s continued commitment to delivering high-quality content across various genres and geographies, which strengthens the company’s value proposition and sustains its pricing power. Moody’s expects these factors to lead to further price increases, continued subscriber growth, sustained revenue momentum, expanding operating margins, and increased free cash flow generation.

However, Moody’s also acknowledged the intense competitive environment in which Netflix operates. The company competes against other large subscription video-on-demand (SVOD) platforms such as Disney+/Hulu, Peacock, Paramount+, and Max, along with Amazon (NASDAQ: AMZN ) Prime Video and YouTube. For 2025, Netflix’s cash content spend is projected to be around $18 billion.

Moody’s expects Netflix to maintain excellent liquidity over the next 12 months, supported by $8.4 billion of cash and cash equivalents and short-term investments (as of March 31, 2025), full availability under the company’s $3 billion senior unsecured revolving credit facility expiring in 2029, and projected free cash flow of around $8 billion in 2025.

It is anticipated that excess cash in the business, beyond investments and maintaining a cash balance of around $6.5 billion, will be used to repurchase shares. As of March 31, 2025, $13.6 billion remains available for repurchases.

The positive outlook by Moody’s is based on the expectation that Netflix will continue to grow its revenue, improve operating margins, generate robust free cash flow, and maintain strong credit metrics.

The ratings could be upgraded if the company continues to grow its revenue and profitability, and remains committed to conservative financial policies, maintaining debt-to-EBITDA (inclusive of Moody’s adjustments) at around 2.0x or less, along with robust free cash flow and liquidity.

Conversely, the ratings could be downgraded if revenue and margin trends weaken on a sustained basis, the company deviates from its conservative financial policies such that debt-to-EBITDA (inclusive of Moody’s adjustments) is expected to be sustained above 2.5x, or free cash flow and liquidity materially weaken.

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