The Netflix story

What drives the business

• Netflix operates as one segment, earns most revenue from monthly membership fees and pursues global growth through compelling content and a range of subscription plans, including an advertising-supported option.
• Its international reach supports that model: in the quarter to June 2026, revenue grew at double-digit rates across all regions, with Europe, the Middle East and Africa surpassing $4.0 billion and both Latin America and Asia-Pacific exceeding $1.5 billion.
• Advertising expands the ways Netflix earns money from its audience, with the Netflix Ads Suite, broader programmatic access and automated campaign tools supporting management's approximately $3 billion advertising revenue forecast for 2026.
• An expanded NFL agreement and the TF1 partnership in France broaden the service beyond on-demand series and films, while Netflix expects live programming to account for just over 5% of content spending in 2026.
• Viewing hours grew 2% in the first half of 2026 despite the Winter Olympics and World Cup, while partnerships with iHeartMedia, Condé Nast, Hearst and People extend the offering into podcasts and lifestyle programming.

What the price assumes

At $69.23, the reverse DCF implies that free cash flow after stock-based pay grows 11.7% annually for ten years, using a 10.2% discount rate.

Netflix delivered 105.8% annual growth in that measure over the last 3 fiscal years, while the TenQ check sets a 54.9% bar by slowing that record halfway toward 4%.

The implied growth clears that check, but the earnings yield of 4.5% remains below the 5.2% Treasury yield, so the valuation checks are not uniformly favorable.

Value NFLX on your own assumptions

What could change the story

• Competition for viewers' time and content rights remains intense, while local investment obligations, levies and catalog quotas can make international operations more expensive or restrictive.
• Operating margin fell to 33.4% in the quarter to June 2026 from 34.1% a year earlier as content amortization grew faster, making the expected moderation in content expense important to margin expansion.
• Free cash flow fell to $1.5 billion from $2.3 billion in the year-earlier quarter, partly reflecting higher cash taxes associated with the Warner Bros. termination fee, while repurchases exceeded operating cash generation.
• The near-term liquidity check falls short at 1.14 against a 1.50 threshold, although cash and short-term investments of $9.1 billion and free cash flow of $11.2 billion over the last twelve months provide financial resources.
• Annual revenue growth of 12.6% over the last three years trails the peer comparison of 18.0%, despite the stronger 16.0% growth recorded over the last twelve months.

What to watch next

• For the quarter to September 2026, management forecasts revenue growth of 12% and an operating margin of 33.2%, with membership growth, pricing and advertising expected to contribute.
• The full-year 2026 forecast calls for revenue of $51.0 billion to $51.4 billion, an operating margin of 31.5% and free cash flow of approximately $12.5 billion, making advertising progress and content expense timing important measures of execution.
• Subsequent releases can show whether repurchases move closer to cash generation, following the $4.7 billion spent in the quarter to June 2026.
• Netflix plans to publish its viewing-hours report annually beginning in 2027, reducing the frequency of that engagement measure while continuing weekly title rankings.

Sources

• Netflix's earnings release, filed with the SEC
• Its latest 10-Q or 10-K, for the risk factors
• The NFLX stock report, for every figure and check