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Broader formats could attract more engagement, while audience reach may raise the value of partner content.
The key trigger is FY2027 diluted EPS growth below 0% while revenue remains positive.
Reduce. The valuation leaves limited room for weaker earnings conversion or an earlier revenue slowdown.
The report was prepared at $78.25 on 2026-09-04. That price is above $63.88 Fair value and just below $79 Potential value.3
FY2027 diluted EPS could contract even if sales rise. That result would fail the earnings-conversion test because growth would not be reaching profit per share.1
Audience reach is the clearest upside. If exclusive formats and partner distribution expand profitable engagement, sales can stay stronger, and cash can support share reduction after content and debt needs.345
Management described links between core series, exclusive creator content, and additional engagement formats on 2026-07-16.4
Management said a larger audience can improve partner-content relevance and monetization, which may attract additional supply.4
Healthy acquisition, retention, pricing, and advertising demand could support continued revenue growth, although that outlook comes from management commentary rather than a capacity indicator.4
Reduce because the report-date price stands above Fair value while earnings conversion and post-FY2027 growth duration remain contested.1
NETFLIX INC primarily derives revenues from monthly membership fees for services related to streaming content to its members. NETFLIX INC offers a variety of streaming membership plans, the price of which varies by country and the features of the plan.
The market for entertainment video is intensely competitive and subject to rapid change. NETFLIX INC also competes against entertainment video providers and content producers in obtaining content for its service, both for licensed content and for original content projects.
The harshest operating path combines an EPS decline, sub-27% margins, and an early revenue slowdown. Profit and cash would weaken together, leaving less room for debt reduction or repurchases.
Netflix has a narrow moat built on content breadth and audience reach. Exclusive extensions can create more viewing occasions, while scale can make partner content more valuable.
The advantage remains conditional. The 8% two-year test is a thesis monitoring threshold, not an observed industry cutoff. A breach would shorten the assumed advantage and post-estimate growth path.
FY2025 free cash flow of $9.46 billion supports strong economics, but cash generation is an outcome rather than a moat source.5
The highlighted cell is Fair value when every assumption sits at its base level ($63.88). Each row and column shows what Fair value becomes when one assumption moves.
Free cash flow to the firm stays positive in the first projected year at $11.5B after modeled capex of $447.3M, with terminal value at 54.5% of . A sudden drop in free cash flow is not projected unless capital spending relative to , reinvestment, or resets materially.
That result would indicate added sales are reaching per-share earnings rather than being absorbed by content and monetization costs.
Entertainment-industry capital spending was negative 1.3% of revenue, while capital spending was 0.63 times depreciation as of 2026-09-01, retrieved that day.
Healthy acquisition, retention, pricing, and advertising demand could support continued revenue growth, although that outlook comes from management commentary rather than a capacity indicator.
A weaker demand cycle would expose whether added formats create profitable engagement or merely require more content spending. Production savings may also be reinvested rather than retained.
Below a normal portfolio weight. The $78.25 report-date price exceeds $63.88 Fair value and is close to $79 Potential value.3
Treat repurchases as discretionary while debt exceeds cash, and do not rely on cash-compounding upside without continued positive free cash flow.
The report-date price is above Fair value, while the growth and margin gates remain unresolved.3
Avoid adding and reduce exposure near Potential value. Preserve only a smaller holding if the operating gates remain intact.
Debt above cash and uncertain post-FY2027 duration make the valuation sensitive to weaker earnings conversion.36
Reduce exposure because the $78.25 report-date price exceeds $63.88 Fair value and sits near $79 Potential value.3
The business can keep compounding, but the shares provide limited room for an earnings slowdown, earlier revenue fade, or sustained margin pressure.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
The records this analysis drew on, as they stood when it was run.
Content and competitive spending absorb added revenue, while weaker cash limits repurchases. This path is confirmed by the earnings, growth, and margin gates in the dedicated downside review.
If FY2027 diluted EPS growth falls below 0% while revenue still grows, content and monetization costs would absorb incremental sales.1
A GAAP operating margin below 27% for two fiscal years would show that competition or content spending has structurally weakened operating leverage.
Revenue growth at or below 5% before FY2030 would invalidate the gradual fade and reduce the duration of above-mature earnings growth.
A cost of equity more than one percentage point above 10.0778% would reduce the present value of distant earnings.2
The five developments that would weaken our investment case.
If revenue still grows while diluted EPS falls, incremental sales are not reaching per-share profit. That would weaken the operating-leverage case and leave less earnings support for cash generation.
Current:The FY2027 estimate is $3.82 per diluted share, within a $3.48-$4.09 range, as of and retrieved on 2026-09-08.
Alert ifBelow 0% annual growth in FY2027.
A sustained breach would indicate content or competitive costs are taking more of each revenue dollar. Lower operating profit would reduce internally generated cash and weaken the case for continued per-share compounding.
Current:FY2025 operating income was $13.33 billion on $45.18 billion of revenue, reported for the year ended 2025-12-31.
Alert ifBelow 27% of revenue for two consecutive fiscal years.
An early growth fade would reduce the future sales base and shorten the period when audience scale can support above-mature growth. That would lower the earnings and cash path used in the thesis.
Current:The FY2027 revenue estimate is $57.01 billion as of and retrieved on 2026-09-08.
Alert ifAt or below 5% in any fiscal year before FY2030.
A higher required return means investors demand more compensation for risk. Future earnings would be worth less in present terms even if the near-term operating outlook were unchanged.
Current:The moderate cost of equity was 10.0778% on 2026-09-08, computed and retrieved at 23:08:40 UTC.
Alert ifMore than 1 percentage point above 10.0778% within 12 months.
Negative free cash flow while debt exceeds cash would force tighter choices among content spending, debt reduction, and repurchases. Slower repurchases would weaken the historical share-count support for per-share growth.
Current:FY2025 debt was $14.46 billion versus $9.03 billion of cash. The observations were available on 2026-09-08 and 2026-01-23, respectively.
Alert ifDebt remains above cash while annual free cash flow turns negative.
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and at , then adjust for signed per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
Solve for the growth rate that makes the model value equal the report-date share price.
The base path holds while revenue fades gradually and margins remain resilient. An early move to mature growth or a sustained margin breach would disconfirm it.1
The bull path requires audience scale to improve partner economics and added formats to produce profitable engagement. Stable margins and positive cash would confirm persistence.45
Tracking the dated estimates would not resolve whether growth persists after FY2027 or whether margins can remain resilient.
That pattern would match the thesis test for costs absorbing added sales or competition weakening both demand and operating leverage.
Reported operating cash flow and free cash flow were positive in FY2025, but content reinvestment still determines how much cash is distributable.56
An early fade would reduce future sales and earnings duration.
Margin shows whether content and competition absorb monetization gains.
Cash funds content, debt reduction, and per-share compounding.
A wider gap would reduce flexibility for repurchases during weakness.
| $29.70B |
| $31.62B |
| $33.72B |
| $39.00B |
| $45.18B |
| +11.1% |
| Gross profit | $12.37B | $12.45B | $14.01B | $17.96B | $21.91B | +15.4% |
| Operating income | $6.19B | $5.63B | $6.95B | $10.42B | $13.33B | +21.1% |
| Net income | $5.12B | $4.49B | $5.41B | $8.71B | $10.98B | +21.0% |
| EPS (diluted) | $1.12 | $1.00 | $1.20 | $1.98 | $2.53 | +22.5% |
| EBITDA | $19.04B | $20.33B | $21.51B | $24.88B | $30.25B | +12.3% |
| R&D | $2.27B | $2.71B | $2.68B | $2.93B | $3.39B | +10.5% |
| SG&A | $1.35B | $1.57B | $1.72B | $1.70B | $1.89B | +8.7% |
FY2025 free cash flow was $9.46 billion, published and retrieved on 2026-08-30. The projection should not assume this requires no content or working-capital reinvestment.45
Repurchases can support per-share growth, but FY2025 debt exceeded cash. Debt reduction and content needs may therefore limit future share-count declines.
Operating income and free cash flow improved, but those outcomes are not treated as substitutes for a consistent multi-year return-on-capital measure.
No comparison is asserted. The 9.8126% WACC is used only as the enterprise valuation rate as of 2026-09-08.
FY2025 operating cash flow was $10.15 billion, available from the filing on 2026-01-23.
Positive cash offers flexibility, but content spending, debt reduction, and repurchases compete for the same funds. FY2025 debt above cash means all three cannot be assumed to receive funding together.
Diluted-average shares declined from 4.495 billion in FY2023 to 4.344 billion in FY2025.
Continued reductions could lift earnings per share, but they remain discretionary.
| Revenue | $12,559,938,000,000 |
|---|---|
| Cost of revenue | $6,036,965,000,000 |
| Gross profit | $6,522,973,000,000 |
| Operating expenses | $2,330,363,000,000 |
| Operating income | $4,192,610,000,000 |
| Non-operating items and tax | -$791,196,000,000 |
| Net income | $3,401,414,000,000 |
| Total assets | $55,596,993,000 |
|---|---|
| Cash | $9,033,681,000 |
| Current assets | $13,020,191,000 |
| Total liabilities | $28,981,505,000 |
| Current liabilities | $10,980,930,000 |
| Shareholders’ equity | $26,615,488,000 |
| Net income | $10,981,201,000 |
|---|---|
| Operating inflow | $11,683,039,000 |
| Depreciation and amortization | $333,389,000 |
| Stock-based compensation | $368,449,000 |
| Operating cash flow | $10,149,273,000 |
| Operating outflow | $1,533,766,000 |
| Cash available | $19,384,817,000 |
| Beginning cash | $7,807,337,000 |
| Investing inflow | $1,041,688,000 |
| Exchange-rate effect | $386,519,000 |
| Financing outflow | $10,345,623,000 |
| Ending cash | $9,039,194,000 |
| Investing cash flow | $1,041,688,000 |
| Financing cash flow | -$10,345,623,000 |
Point-in-time financial data used in the 2026-09-08 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | $8.8B | $5.3B | $186.7M | -$1.5B | -$1.6B | $107.7M | $57.5M | $173.7M | — | $0 | — | $49.8M | $1.1B | — | $1.5B | $1.7B | $3.6B | 4.3% | — | — | — |
| 2017-12-31 | $11.7B | $7.1B | $558.9M | -$1.8B | -$2B | $173.3M | $71.9M | $182.2M | — | $0 | — | $34.3M | $3.1B | $1.5B | $2.8B | $2.8B | $9B | 7.2% | — | — | — |
| 2018-12-31 | $15.8B | $9.3B | $1.2B | -$2.7B | -$2.9B | $173.9M | $83.2M | $320.7M | — | — | — | -$339.1M | $4B | $2.8B | $3.8B | $3.8B | $14.9B | 10.2% | — | — | — |
| 2019-12-31 | $20.2B | $12B | $1.9B | -$2.9B | -$3.1B | $253M | $103.6M | $405.4M | $0 | — | — | -$387.1M | $4.5B | $3.8B | $5B | $5B | $20.7B | 12.9% | — | — | — |
| 2020-12-31 | $25B | $15.5B | $2.8B | $2.4B | $1.9B | $497.9M | $115.7M | $415.2M | $0 | — | — | -$505.4M | $1.2B | $5B | $8.2B | $8.2B | $21.9B | 18.3% | — | — | — |
| 2021-12-31 | $29.7B | $19B | $5.1B | $392.6M | -$132M | $524.6M | $208.4M | $403.2M | $600M | — | — | -$1.3B | -$1.1B | $8.2B | $6.1B | $6B | $15.4B | 20.9% | — | 6.6% | — |
| 2022-12-31 | $31.6B | $20.3B | $4.5B | $2B | $1.6B | $407.7M | $336.7M | $575.5M | $0 | — | -$700M | -$2.1B | -$664.3M | $6.1B | $5.2B | $6.1B | $14.4B | 17.8% | — | 8.7% | — |
| 2023-12-31 | $33.7B | $21.5B | $5.4B | $7.3B | $6.9B | $348.6M | $356.9M | $339.4M | $6B | — | $0 | $541.8M | -$6B | $5.2B | $7.1B | $7.1B | $17B | 20.6% | — | 11.4% | — |
| 2024-12-31 | $39B | $24.9B | $8.7B | $7.4B | $6.9B | $439.5M | $328.9M | $272.6M | $6.3B | — | $1.4B | -$2.2B | -$4.1B | $7.1B | $7.8B | $9.6B | $15.6B | 26.7% | — | 12.3% | — |
| 2025-12-31 | $45.2B | $30.3B | $11B | $10.1B | $9.5B | $688.2M | $333.4M | $368.4M | $9.1B | — | -$1.8B | $1B | -$10.3B | $7.8B | $9B | $9.1B | $14.5B | 29.5% | — | 10.8% | — |
Netflix Inc. (NFLX) trades at 21.6x forward earnings against a peer median of 18.5x. Its EV/EBITDA of 22.6x compares with a peer median of 21.5x. The comparison uses 4 peers: The Walt Disney Company, AppLovin Corporation, Electronic Arts Inc. and Alphabet Inc. Class C, as of 2026-09-07 to 2026-09-08.
| Broader digital entertainment formats | positive | Live events, podcasts, and creator extensions can widen engagement occasions, but their economics still require margin confirmation. |
| Intensifying competition for attention and advertising | negative | The selected comparison set spans distinct, capable competitive channels with wide growth and margin dispersion. |
Netflix enters this demand cycle with audience scale and positive cash generation, but must preserve both growth and operating margin to demonstrate resilience.45
| At or above $63.88 Fair value | Do not add; use strength to reduce exposure. | The price already discounts more value than the house midpoint. |
| Below $63.88 | Reassess the rating before taking any new position. | A lower price alone would not repair weak growth or margin evidence. |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
| AppLovin Corporation |
| 15.3x |
| 15.8x |
| 19.9x |
| 203.7% |
| 77.7% |
| EA | Electronic Arts Inc. | 21.8x | 6.7x | 30.4x | 16.5% | 25.9% |
| GOOG | Alphabet Inc. Class C | 22.6x | 9.2x | 23.1x | 48.7% | 34.0% |
