It wiped more than $50bn off the firm’s market value as experts warned it faced a struggle to get back on track.

Netflix faces intense competition from streaming rivals, but was also hit after it raised prices and left Russia.

Yet some cast doubt on its plans to boost growth, which include bringing in a free ad-supported service.

It also plans to crack down on password sharing, estimating that more than 100 million non-paying households watch the service this way.

In a sign of the unease, one of America’s best known investors, William Ackman, ditched his $1.1bn investment in Netflix on Wednesday, taking a loss of more than $400m.

His hedge fund Pershing Square Capital Management had bought the shares just three months ago.

In a brief statement, Mr Ackman said that while Netflix’s plans to change its business model made sense, investing in the company felt too risky.

“While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” he wrote.

In a trading update on Tuesday, Netflix said its total number of subscribers had fallen by 200,000 in the first three months of 2022, falling well short of its target.

It also said some two million more were likely to quit the service in the three months to July.

Some analysts warned that, after period of turbo-charged expansion during the pandemic, the streaming giant has run out of easy ways to grow.

Squeezed consumers are cutting back on streaming services to save money, while some feel there is too much content to choose from amid an avalanche of competition from rivals such as Disney and Amazon.

“Netflix’s wider problem, along with the rest of the sector is that consumers don’t have unlimited funds, and that one or two subscriptions is usually enough,” said Michael Hewson, an analyst at CMC Markets.

“Once you move above that something has to give in a cost-of-living crisis, and while Netflix is still the market leader, it doesn’t have the deeper pockets of Apple, Amazon or Disney, which makes it much more vulnerable to a margin squeeze.”

But Julian Aquilina, senior TV analyst at the media research firm Enders Analysis, said it was wrong to write the firm off.

“The streaming market is maturing and the high expectations people had about Netflix are being reset.

“But I think it will remain the market leader, it has such a commanding position. If people are going to ditch a subscription, Netflix won’t be the first one they choose.”

He added that the firm had just put up its prices “which always leads to a drop in subscribers, but also means it’s making more revenue per customer”.

Netflix remains the world’s leading streaming service with more than 220 million subscribers. It is increasingly producing its own content and shows such as the Crown, Bridgerton and Squid Game have been global hits.

The firm had enjoyed uninterrupted quarterly growth in subscribers since October 2011 but on Tuesday it admitted it was losing customers to rivals, while struggling to expand due to password sharing.

It also said a decision to raise prices in key markets had cost it 600,000 subscribers in North America alone, while its exit from Russia over Ukraine lost it 700,000.

Despite the challenges, revenue grew by $7.8bn (£6bn) in the first three months of the year, up 9.8% compared with the same period last year.

That marked a slowdown from earlier quarters, while profits fell more than 6% to roughly $1.6bn.

Netflix’s shares plunged 35% on Wednesday, and fell a further 3.5% on Thursday.

Source : adomonline

This concludes the review for downgrade that was initiated on September 30, 2022.

“The Ca rating reflects Moody’s expectation that private creditors will likely incur substantial losses in the restructuring of both local and foreign currencies debts planned by the government as part of its 2023 budget proposed to Parliament on 24 November 2022″, a statement published on its website said.

The statement pointed out that “given Ghana’s high government debt burden and the debt structure, it is likely there will be substantial losses on both categories of debt in order for the government to meaningfully improve debt sustainability.”

It explained further that the stable outlook balances Moody’s assumption that the debt restructuring will happen in coordination with creditors and under the umbrella of a funding program with the IMF against the potential for a less orderly form of default that could result in higher losses for private-sector creditors.

In addition, Moody’s said it has also downgraded Ghana’s senior unsecured debt ratings to Ca from Caa2 and the senior unsecured MTN programme ratings to (P)Ca from (P)Caa2, along with downgrading to Caa3 from Caa1 the rating of Ghana’s bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable), concluding the concurrent reviews for downgrade. The latter reflects a blended expected loss consistent with a one-notch uplift on the issuer rating.

“Finally, Moody’s has lowered Ghana’s local currency (LC) and foreign currency (FC) country ceilings to respectively Caa1 and Caa2, from B2 and B3, mirroring the downgrade of the sovereign ratings by two notches,” it stressed.

“Non-diversifiable risks are captured in a LC ceiling three notches above the sovereign rating, taking into account relatively predictable institutions and government actions, limited domestic political risk, and low geopolitical risk; balanced against a large government footprint in the economy and the financial system and external imbalances. The FC country ceiling one notch below the LC country ceiling reflects constraints on capital account openness and very weak policy effectiveness against authorities’ history of providing access to foreign exchange,” it added.

Ratings rationale

Moody’s expects that the restructuring of local and foreign currencies debts announced by the government on November 24, 2022 as part of its budget proposal for 2023 will likely result in significant losses for private creditors.

The government has been grappling with increasingly high and costly debt for more than a year now, leaving increasingly limited policy levers to arrest the negative spiral between high inflation and elevated interest rates, depreciating local currency and rising debt.

As such, restructuring debt has progressively appeared as a necessary condition to secure debt sustainability. Moreover, given the structure of government debt, equally split between foreign and local currency, its elevated level (forecast at 104% of GDP by end of this year) and cost (interest payments should consume 58% of revenue in 2022), substantial losses to creditors as part of the debt exchange are likely in Moody’s view.

Rationale for stable outlook

The stable outlook primarily reflects Moody’s assumption that the debt restructuring will happen in a coordinated and orderly manner with creditors under the umbrella of a funding program with the IMF.

The risk of higher losses for private-sector creditors than currently assumed by Moody’s is relatively contained, supported by Ghana’s economy and institutional framework.

Environmental, Social, Governance considerations

Ghana’s ESG Credit Impact Score is very highly negative (CIS-5), reflecting its high exposure to social risks. Resilience to environmental and social risks is very weak, constrained by low wealth and very high debt levels.

It said Ghana’s credit profile is moderately exposed to environmental risks (E-3 issuer profile score), adding “the cocoa sector is a large contributor to GDP, exports and employment and being demanding in water, it exposes the country to climate changes and especially droughts. More generally, the size of the agricultural sector exposes the economy to weather-related disruptions and the effects of climate change. Ghana is also exposed to water management risks stemming from a lack of access to potable water in some areas”.

“The exposure to social risk is highly negative (S-4 issuer profile score), driven by limited access to quality housing and education, especially in rural areas. Risks related to health and safety and access to basic services are moderately negative. While the government has put in place measures aimed at reducing poverty and inequality and strengthening social safety nets, its fiscal challenges constrain its scope for meaningful reduction in social risks given more than half of government revenue is consumed by interest payments”, it added.

Governance is very highly negative with a G-5 issuer profile score, it pointed out, adding, overall, Ghana’s institutions have shown some effectiveness, however domestic revenue mobilisation challenges and significant constraints on fiscal policy effectiveness manifest in very weak debt affordability.

The authorities have undertaken some institutional reforms on the revenue and competitiveness front, which will invariably take time to produce results.

It further stated that the government’s plan to resort to a restructuring of its debt, which constitutes a default under Moody’s definition, to improve its sustainability is ultimately a sign of institutional weakness. Governance considerations are a driver of today’s rating action.

The heightened default risk associated with Ghana’s announcement of a plan to restructure debt prompted the publication of this credit rating action on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on www.moodys.com. In addition, by virtue of the ratings having been on review for downgrade, the conclusion of the review had to deviate from the previously scheduled date in the sovereign release calendar.

Source : adomonline