NFLX — Netflix, Inc.
Streaming Entertainment / Advertising / Content · NASDAQ · Los Gatos, CA
| 🟢 |
Our View: We Like It Netflix won the streaming wars. 325 million subscribers, $45 billion in revenue, operating margins above 31%, and an ad business that's doubling. The stock is 27% off its highs, and the forward P/E of ~31x is near its lowest level in years. The password-sharing crackdown and ad tier have created a new growth chapter that the market is only beginning to price in. |
01 | The Story |
Remember when everyone said Netflix was doomed? Subscriber losses, competition from Disney+ and HBO Max, the password-sharing crisis? That was 2022. Netflix fixed all of it — and came out the other side as the most profitable entertainment company in the world.
The password-sharing crackdown — which critics said would backfire — turned millions of freeloaders into paying customers. The ad-supported tier, launched at a lower price point, is growing fast and now brings in around $3 billion annually, doubling year-over-year. And the core subscription business keeps compounding: 325 million paid subscribers, up from around 260 million two years ago.
Revenue hit $45.2 billion in FY2025. Operating margins expanded to nearly 32% — up from 21% just two years earlier. That kind of margin expansion on a business this size is unusual. Netflix is generating roughly $11 billion in free cash flow, which it's using for content investment, share buybacks, and building out its live events and gaming capabilities.
The growth story has shifted from "how many subscribers can they add?" to "how much can they earn per subscriber?" Revenue per member is climbing through price increases, the ad tier, and higher-value plans. The guidance range of $50.7–$51.7 billion for 2026 implies continued mid-teens growth — impressive for a company of this scale.
The stock dropped about 27% from its high, partly because Netflix stopped reporting quarterly subscriber numbers (making it harder for Wall Street to model) and partly because the trailing P/E of ~39x looks expensive. But on a forward basis (~31x) with 25% EPS growth, the valuation is actually quite reasonable for the quality of business Netflix has become.
02 | The Numbers |
Here's the data for those who want to dig in.
Stock Price $98.55 |
Market Cap ~$415B |
Subscribers 325M+ |
Operating Margin 31.5% |
What the numbers tell us:
The profitability transformation is real. Operating margins went from 21% to 32% in two years. Free cash flow is projected at $11 billion for 2026. Netflix has gone from burning cash to becoming one of the most profitable media companies on the planet.
The ad business is a second growth engine. Roughly $3 billion in ad revenue, doubling year-over-year. This is still early — ad revenue per user on Netflix is a fraction of what YouTube and traditional TV earn. As the ad product matures, this could add billions more in high-margin revenue.
The PEG of ~1.9 is above our ideal threshold. Netflix isn't cheap on a growth-adjusted basis. The forward P/E of ~31x is reasonable for the growth rate, but there's less margin of safety than we'd like. The 27% pullback helps — but this is a "pay up for quality" name, not a deep value opportunity.
03 | The Chart |
| The Trend | Correcting from highs but long-term uptrend intact. 52-week range: $75–$134. |
| Momentum | Cooling off after the pullback. Not yet oversold. |
| Where it sits | About 27% below the $134 52-week high. |
What this tells us: Netflix has pulled back meaningfully from its highs, creating a more attractive entry point. The company is a consistent executor — earnings have beaten estimates almost every quarter. The pullback seems driven more by market conditions than fundamental deterioration. Next earnings will be a key test.
04 | The Bottom Line |
🟢 We Like It
Netflix won the streaming wars and is now entering a new chapter of profitable growth. 325 million subscribers. $11 billion in projected free cash flow. An ad business that's barely getting started. And margins that are still expanding. The 27% pullback creates a reasonable entry into what has become the most dominant entertainment platform in the world.
The PEG is above our preferred threshold, which means this isn't a value play. You're paying for quality and consistency. The risk is that content spending needs to keep rising, competition hasn't fully retreated, and the ad business needs to scale as expected. But Netflix has earned the benefit of the doubt — they've executed through every headwind thrown at them.
How We're Thinking About It
The pullback makes Netflix more interesting than it's been in a while. At ~31x forward earnings with mid-teens revenue growth and expanding margins, the math works for patient holders. The ad tier is the wildcard — if it scales to $5–$10 billion in the next few years, the stock re-rates meaningfully higher.
This is a name where the business quality is undeniable. The question is always price. The 27% pullback helps close that gap, though it's still not what we'd call "cheap." For investors who want exposure to the future of entertainment and can hold through quarterly noise, this is a strong position to build over time.
Two years ago, the narrative was that Netflix was losing the streaming wars. Today, it's the only major streamer generating meaningful profits. The ones that were supposed to beat it — Disney+, HBO Max, Peacock — are all still trying to reach profitability. Meanwhile, Netflix is generating $11 billion in free cash flow and building an ad empire. The narrative changed. The company didn't.
This is education and opinion, not financial advice. Always do your own research before making investment decisions.