NFLX - Valens Credit Report - 2022 05 24
Credit markets are overstating credit risk with a YTW of 4.831% and a CDS of 196bps relative to an Intrinsic YTW of 3.393% and Intrinsic CDS of 47bps. Meanwhile, Moody's is materially overstating NFLX's fundamental credit risk with its Ba1 credit rating five notches below Valens' IG3 (A2) credit rating.Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. Management members are likely well-aligned with shareholders for long-term value creation, which is bolstered by President Hastings' significant ownership position. In addition, management members also have low change-in-control compensation indicating they are not incentivized to pursue a buyout, and NFLX's large market capitalization limits event risk related to a sale of the company.
Netflix is engaged in subscription streaming entertainment service including TV series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, without commercials. Additionally, several members in the United States subscribe to the company's DVD-by-mail service. The company improves its streaming content with a focus on a programming mix of content. The company's members can download a selection of titles for offline viewing. The company operates its business as a global operating segment.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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