NFLX — Netflix, Inc.

Historical research snapshot. Valuation is anchored to the July 23, 2026 price; this is not a live market update. Internal portfolio records and companion files are excluded from this sharing copy.

Executive Summary

Company Overview

• Netflix is the global scale leader in paid streaming, selling films, series, live programming and creator content directly to households worldwide
  • Subscriptions drive revenue and earnings — roughly 325M paid memberships reach an audience approaching 1B people across advertising-supported, Standard and Premium plans
  • Advertising is the main incremental monetization opportunity — it adds a second revenue stream to the same viewing base, although Netflix does not regularly report separate quarterly revenue by subscription tier, advertising or content format

Investment Setup

• LONG NFLX at $68.89 (July 23, 2026 close)
  • The stock is 46% below its 52-week high of $126.71 and 5.9% above its $65.08 post-Q2‘26 intraday low¹
  • At the $67.60 July 20 post-Q2‘26 closing low, Netflix’s 1.43x price/earnings-to-growth ratio (PEG) was effectively equal to the 1.44x media-peer median. At $68.89, Netflix trades at 1.48x PEG versus a 1.37x media median—an ~8% growth-adjusted premium—and ~19.9x NTM P/E, between the 12.6x media and 25.9x mega-platform medians¹ ²
  • Our Base case of $85.05 (+23.5%) assumes operating performance at or below consensus and a modest re-rating to 21.0x NTM P/E. Across three scenarios, the EV-weighted return is +17.8%¹ ²
• The Q2‘26 update softened the near-term growth outlook, but did not break the earnings base
  • Q2 revenue missed guidance by only 0.1%, but management guided Q3‘26 revenue growth to 11.7%—~1% below pre-earnings Street and its slowest growth guide in recent quarters. Netflix narrowed FY26 revenue around an unchanged $51.2B midpoint and maintained its 31.5% operating-margin target; Q3 operating margin is still expected to expand to 33.2% from 28.2% a year ago¹
• Reduced disclosure amplified a broader confidence break
  • At Q1‘24 earnings (April), Netflix announced it would stop reporting quarterly paid-membership counts and average monthly revenue per paying membership (ARM) beginning with Q1‘25. As subscriber growth slowed and engagement became harder to verify, shares subsequently fell ~42%, from ~$128 in June 2025 to $74.35 before Q2‘26 earnings; that decline also reflected engagement concerns and the Q1‘26 update (April) guiding a temporary Q2‘26 margin step-down¹ ³ ⁹
  • At Q2‘26 earnings (July 16), Netflix further reduced visibility by moving What We Watched—its title-level and total-viewing-hours report covering ~99% of video watch time—from semiannual to annual publication. Combined with the lower Q3 growth guide, shares fell an additional 7.3% at the July 17 close, followed by 17+ Wall Street price-target cuts but no downgrades¹ ¹⁰
• The operating evidence is stronger than the share-price reaction suggests
  • Q2 revenue grew 13.4% as memberships, price increases and advertising all contributed, while monthly churn remained near 2% through both price increases. Street estimates imply FY2026 year-end paid memberships still grow ~7%, although Netflix no longer reports the figure³ ⁹
  • The concern is engagement: 1H 2026 total viewing hours grew only 2%, while Street-cited Sensor Tower data for Q2‘26 showed mobile-app monthly active users down 3% YoY globally and in the US and app time spent down 7% globally / 8% in the US. The mobile weakness is a warning, not evidence that total viewing is falling: the panel excludes Netflix watched on TV screens through smart TVs or connected devices⁹

Variant view

• The market is treating Netflix like a maturing media company because subscriber growth is slowing and the shift toward pricing and advertising is harder to verify
  • The long case is that the market has over-discounted that transition. Netflix absorbed two US price increases within 14 months with churn roughly flat, while advertising adds a second monetization layer. The Base case requires only a partial re-rating to 21.0x and remains below the Street’s $98 median price target²

Risks

• The principal risk is that membership growth and engagement weaken faster than pricing and advertising can offset
  • Third-party mobile-app panels—an incomplete proxy for total viewing—show monthly active users down 3%, time spent down 7–8% and Netflix’s share of US streaming-app time falling from 50% to 48% quarter over quarter. Reduced company disclosure makes it harder to distinguish a manageable slowdown from a broader deterioration⁹

Risk/Reward (12-month, vs $68.89):

Full scenario definitions are in Valuation.

Catalyst

• Q3‘26 earnings (~Oct. 20) — tests management’s $12.86B revenue guide (+11.7% YoY), 33.2% operating-margin guide and stronger US/Canada growth

Investment Thesis

Core question — can pricing and advertising offset slower membership growth without weakening retention or engagement?

In one line: Netflix is a demonstrated-delivery franchise priced near declining-media parity after a disclosure-driven confidence break; the long works if Q3‘26 confirms that pricing, retention and margin expansion remain intact

1. Pricing and Retention Remain Intact Despite Slower Membership Growth, While Advertising Adds a Second Growth Leg

• Membership growth has slowed materially, but remains positive
  • Street estimates imply FY2026 year-end paid-membership growth of ~7%. Q2‘26 revenue grew 13.4% versus 15.9% in Q2‘25, reaching $12.56B—0.1% below management’s $12.574B guide. Memberships, pricing and advertising all contributed, but management did not quantify the split¹ ³
• Retention still supports pricing power
  • Monthly churn remained near 2% through two price increases inside 14 months—the lowest of nine premium services—and the January 2025 increase’s churn spike normalized within four months⁹
  • Competitor churn was higher: Disney+ 3%; Hulu 4%; Paramount+, Apple TV+, Discovery+ and HBO Max 5%; Peacock 7%; Starz 8%; nine-service weighted average 4%⁹
• Engagement is the main unresolved operating risk
  • 1H 2026 total viewing hours grew only 2%. Street-cited Sensor Tower data for Q2‘26 showed mobile-app monthly active users down 3% YoY globally and in the US and app time spent down 7% globally / 8% in the US. These mobile-only declines warrant monitoring, but do not establish a decline in Netflix’s total viewing⁹
• Reduced disclosure raises the proof burden
  • Netflix stopped reporting memberships and ARM beginning with Q1‘25 and will publish What We Watched only annually beginning in 2027. The financial model remains visible, but the operating drivers now require third-party triangulation³ ⁹

The full volume and monetization bridge is in the Growth Decomposition Bridge

2. The 1H 2026 Margin Dip Appears Timing-Driven, but Q3‘26 Must Confirm the Reacceleration

• The annual margin path remains intact
  • Q2 operating margin beat guidance at 33.4% versus 32.6%, and management maintained its 31.5% FY2026 target despite the 1H 2026 content-amortization step-up¹
• Q3‘26 is the next proof point
  • The 33.2% Q3 guide, up from 28.2% a year ago, must confirm management’s expectation that content-amortization growth decelerates to mid-to-high single digits in 2H 2026¹
• The remaining debate is duration, not the 1H 2026 dip
  • The Q2 beat included expense timing and out-year content spending is rising. The Base case assumes margin expansion moderates to 100bp in FY2028, reaching 34.0%² ⁷

3. The Valuation Requires a Partial Re-Rating, Not an Earnings Beat

• The market briefly priced Netflix at media-peer parity on growth-adjusted valuation
  • At the $67.60 post-Q2‘26 closing low on July 20, Netflix traded at 1.43x PEG versus the 1.44x media median. At $68.89, it trades at 1.48x versus a 1.37x media median—an ~8% premium despite superior growth, margins and returns¹ ²
• The Base case remains below the mega-platform cohort
  • The $85.05 target applies a modest 21.0x NTM P/E to $4.05 of NTM+1 EPS, ~3.5% below Street, versus a 25.9x mega-platform median. Upside comes from delivery and a partial re-rating, not an earnings beat¹ ² ⁷

4. The Buyback Is a Conviction Signal, Not the Thesis

• Netflix accelerated repurchases as the shares declined
  • Netflix repurchased $4.7B in Q2—its largest quarterly buyback—at a weighted average price of ~$89, including ~$79 in June. At $68.89, the shares are ~23% below the Q2 repurchase price, with $27.1B of authorized capacity remaining. The authorization has no expiration date, but Netflix has not committed to a specific amount or schedule¹ ⁴
• The share-count benefit is meaningful but conservatively modeled
  • ~$11–12B of annual repurchases at current prices equates to ~4% of shares outstanding before new issuance. The Base assumes diluted shares fall from 4,326M in FY2026 to 4,240M in FY2027 and 4,150M in FY2028—~2% annually. Faster net reductions would add to per-share earnings without requiring stronger operating results⁷ ⁸

See Footnotes for supporting sources.

Market & Competition

Market at a Glance

TV-screen viewing includes streaming, broadcast and cable; it excludes phones and computers. Market indicators describe separate opportunities and are not additive.² ⁹ ¹⁰

Market tailwinds

• Viewing continues to migrate from linear television to streaming and creator video. Streaming reached 48.6% of US television usage in May 2026, expanding the opportunity while strengthening YouTube as Netflix’s largest competitor for attention.⁹
• Pricing and penetration still have room to compound. Netflix reaches under 45% of its roughly 800M addressable broadband households, while churn near 2% through two US price increases supports further monetization of the installed base.³ ⁹ ¹⁰
• Advertising budgets are following connected-TV audiences. Connected TV (CTV) is internet video watched on a TV screen. Netflix is building a second revenue stream against the same viewing base, with advertising targeted to roughly double to ~$3B in FY2026.¹ ²

Competition spans three budgets: household subscriptions, viewing time and advertising spend. Disney and HBO Max compete most directly for premium subscriptions and content; Prime Video changes the consumer-price comparison through bundling; YouTube is the largest competitor for attention and connected-TV advertising. Netflix reports one reportable segment, and no public company supplies a clean Netflix equivalent.

Competitive Matrix

Audience shares are Nielsen measures of total US television usage. Observation months differ because not every service is reported separately each month; Netflix’s global share is management’s framing and is not directly comparable.⁹ ¹⁰

Closest business model: Disney, through Disney+ and Hulu, is the closest public premium-video comparator. Parks, linear networks and franchise monetization make the consolidated economics materially different.

Ecosystem: Alphabet, through YouTube, is the dominant attention and connected-TV advertising platform. Its free, creator-led model makes audience competition direct but financial comparison imperfect.

Differentiation and Right to Win

• Low churn supports pricing power without contractual lock-in

  • Antenna’s May 2026 US monthly churn was ~2%, versus 3% for Disney+, 4% for Hulu and a 4% nine-service weighted average that includes Netflix. Retention through two US price increases supports the view that households value the service enough to keep paying⁹
  • The limit is engagement — customers can cancel or keep several services. Weak mobile-app usage is a warning, although it does not measure Netflix viewing on television screens. Retention is stronger evidence than an assumption that the catalogue makes switching impossible⁹

• Global distribution can spread content investment across a larger paying audience

  • Netflix crossed 325M paid memberships during Q4‘25. A locally produced hit can serve viewers beyond its home market, while the same discovery and delivery infrastructure supports the wider catalogue. The economic advantage is the potential to earn more from a successful title, not simply spending more on content¹³
  • Scale does not guarantee content returns — rights, production and localization still cost money, and global reach cannot rescue an unwatched title. Disney’s franchises and Amazon’s broader bundle remain credible alternatives; higher content spending must translate into retention or monetization

• Discovery and reliable delivery help turn catalogue breadth into repeat use

  • Personalized recommendations and Netflix’s Open Connect delivery network reduce the work of finding and streaming something worth watching. Product improvements can benefit the existing membership base without requiring a separate content purchase for every customer¹³
  • The technology is an execution advantage, not an exclusive capability — YouTube also competes through discovery and a broad supply of programming. The test is whether Netflix sustains viewing and retention, not whether it announces another interface or AI feature

• The ad tier broadens affordability and adds advertiser revenue to the same viewing base

  • Netflix reported 250M+ global monthly ad-supported viewers in May 2026, alongside expanded planning, measurement and programmatic buying capabilities. This gives advertisers access to a large audience and makes inventory easier to buy; viewers are not the same measure as paid memberships¹³
  • Reach must convert into profitable sales — ad pricing, inventory sold and the subscription revenue forgone when customers choose cheaper plans determine the outcome. The ~$3B FY2026 advertising target is the near-term test, while YouTube and Amazon remain competing destinations for advertiser budgets¹ ²

• Distribution partnerships reduce access friction and extend reach

  • Device, internet-provider and pay-TV partnerships put Netflix alongside the services households already use. Management cites Mercado Libre loyalty bundles in Mexico and Brazil as helping deepen penetration. Films, series, live events and creator programming add reasons to return between major releases¹³
  • Access is not exclusivity — partners can carry competing services and other platforms offer their own bundles. Broader distribution and new formats are valuable only if incremental viewing, retention and revenue justify their economics

Valuation

• Netflix’s headline premium to media largely disappears after adjusting for growth

  • At $68.89, NFLX trades at ~19.9x NTM P/E, between the 12.6x media and 25.9x mega-platform medians. Netflix grows ~4.7 points faster than media, carries an ~11-point higher EBITDA margin, and generates ROIC near the mega-platform median, yet its PEG remains only a single-digit premium to media. The media cohort therefore provides a downside anchor, not the appropriate fair-value endpoint.¹ ²

• The 21.0x Base multiple represents a modest partial re-rating

  • It is only 1.1 turns above the current multiple and remains 4.9 turns below the mega-platform median. This gives Netflix credit for its stronger growth, margins, and returns without assuming that the market awards it a full mega-platform valuation.¹ ²

• The $85.05 Base target does not require an earnings beat

  • Applying 21.0x to $4.05 of NTM+1 EPS yields $85.05 (+23.5%). Our operating assumptions are at or below consensus across FY2026–FY2028, while NTM+1 EPS is ~3.5% below Street. The upside comes from delivery and a partial re-rating—not higher estimates.¹ ² ⁷

Peer Valuation & Operating Quality

Media cohort: Spotify (SPOT), Roku (ROKU), Disney (DIS), Fox (FOXA), Comcast (CMCSA) and Warner Bros. Discovery (WBD). Mega-platform cohort: Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Meta (META). Medians exclude NFLX.¹

Operating Case — Management / Street / Base

Street: July 23 CIQ consensus. Base EPS is GAAP; Street EPS is normalized, so the spreads are reference comparisons. Operating margin uses consensus operating income ÷ revenue.⁷

Scenario Valuation

Risks & Thesis Killers

Risk Matrix

Thesis Killers

• FY2026 revenue guidance falls below the $51.0B floor
  • The raised floor is the minimum operating outcome required for the long
• FY2026 operating-margin guidance falls below 31.5%
  • A disclosed non-operating one-time item does not count as a break
• The advertising trajectory is reduced
  • Management walks back the ~$3B target or the upfront closes materially light
• Free-trial testing extends into the US or UK
  • Subsidizing acquisition in the core markets would indicate that membership growth is weaker than the current evidence suggests

The complete Bear Case is in the Appendix.

Catalysts

• Q3‘26 earnings test delivery of the revenue and margin guides
  • Management guides $12.86B revenue (+11.7% YoY) and a 33.2% operating margin. Revenue at or above that forecast, margin near the guide and US/Canada growth above Q2‘26’s ~10% would support the pricing-and-margin case¹

Position Sizing and Investment Strategy

Position Sizing

• Medium conviction supports a 2% allocation of total portfolio NAV
  • Low churn and pricing power support owning the shares; weaker engagement and reduced disclosure limit conviction in a larger position.
• Build toward 3% as earnings visibility improves
  • Stronger operating evidence supports a larger allocation only while the shares retain attractive upside to fair value

Position Management

• Q3‘26 tests near-term delivery; the FY2027 outlook determines whether to add
  • Delivery of the 33.2% Q3 operating-margin guide and stronger US/Canada growth support holding. A credible FY2027 outlook for low-double-digit revenue growth and continued margin expansion, supported by retention and advertising, would strengthen the case for adding
• Take gains as the valuation gap closes
  • Delivery of the Base re-rating supports taking gains; a guidance cut or further engagement deterioration favors reducing exposure, and a thesis killer warrants reducing or exiting
• Operating delivery must eventually earn valuation recognition
  • If the multiple remains below 19.0x despite operating delivery by Q4‘26 earnings (January 2027), reassess the thesis or exit rather than extending the holding period automatically

Investment Edge & Repeatability

• Investment Edge
  • The market has over-discounted the shift from subscriber growth toward pricing and advertising. Churn near 2% through two price increases supports pricing power, while advertising adds revenue from the same audience. The opportunity is a partial re-rating as financial delivery demonstrates the durability of those economics, not an earnings-beat call
  • Weaker engagement is the key challenge to that view. Mobile-app declines warrant caution but exclude TV-screen viewing; reported revenue, margins and total viewing must support the conclusion that monetization can offset slower membership growth
• Repeatability
  • Look for a valuation reset caused partly by reduced visibility, with independently supported retention, monetization and cash generation. The approach is repeatable when the price allows conservative operating assumptions and identifiable earnings updates can resolve the uncertainty
  • It fails when reduced visibility conceals deteriorating economics. Rising churn, sustained engagement weakness or content costs that absorb pricing gains would undermine the case; a lower multiple alone is not evidence of an opportunity

Hedging

Factor Hedge

SPY, QQQ and XLC are alternative overlays for different exposures, not a combined hedge. The overlays below describe potential hedging approaches.

Single-Name Hedge

• Spotify is the preferred single-name hedge: long Netflix’s recovery against another scaled subscription platform

  • Both businesses depend on subscriber retention, pricing and engagement, with advertising providing additional monetization. Spotify offers a closer match to Netflix’s recurring consumer-subscription economics than a diversified media conglomerate. It reported 293M Premium subscribers in Q1‘26, up 9% YoY¹⁴
  • The relative case is that Netflix’s operating delivery can reverse part of its disclosure-driven de-rating. A Spotify short would seek to reduce shared subscription-platform and growth-stock exposure while retaining that Netflix-specific recovery opportunity. The pair can work with both stocks rising if Netflix outperforms
  • Netflix trades at ~19.9x NTM P/E versus Spotify’s ~32.0x, but Spotify’s expected EPS growth is also faster—~23% versus ~13% in FY2026–FY2028. Its ~1.38x PEG versus Netflix’s ~1.48x means the higher P/E is not, by itself, evidence that Spotify is overvalued¹

• Roku is the stronger alternative when the exposure to hedge is streaming advertising

  • Roku is more directly exposed to connected-TV advertising—ads delivered through internet-connected television devices. That makes it relevant if the concern is weaker advertiser spending or streaming-ad monetization, rather than subscription pricing and retention
  • It is less suitable for the whole Netflix position: Netflix remains primarily subscription-funded, while Roku combines advertising, subscription distribution and devices. Roku also has a substantial earnings ramp of its own: Q1‘26 advertising revenue grew 27%, and adjusted EBITDA rose 165%. That improvement could lift Roku independently of Netflix’s results¹⁴
  • Roku’s ~53.6x NTM P/E therefore needs to be viewed alongside ~48% expected FY2026–FY2028 EPS growth. Shorting it simply because its multiple is higher would overlook the operating momentum supporting that valuation¹

• Disney is a direct product competitor, but its stock is a less focused hedge

  • Disney+ and Hulu compete with Netflix for subscriptions, viewing time and advertising. However, Experiences—parks, cruises and consumer products—generated ~57% of Disney’s Q2 FY2026 segment operating income. Much of the short would therefore depend on businesses outside streaming¹⁴
  • Disney also has its own streaming-profitability improvement: subscription-video operating income rose 88% to $582M in that quarter. At ~12.6x NTM P/E, the short introduces exposure to a cheaper conglomerate whose parks or streaming recovery could outweigh any Netflix-related pressure¹ ¹⁴

• The principal risk to the Spotify pair is Spotify’s own margin expansion

  • Music licensing economics, podcast profitability and audiobook monetization can improve independently of Netflix. At its May 2026 Investor Day, Spotify targeted 35–40% gross margin and operating margin above 20% by 2030. Faster progress could drive Spotify earnings upgrades even if Netflix delivers our Base case¹⁴
  • Audio and video also have different usage patterns and content costs. The pair offers a subscription-business comparison, not protection against a Netflix-specific engagement decline, content miss or guidance cut

Appendix

Business Overview

Company Overview

• Netflix is a global subscription entertainment service
  • Consumers pay for on-demand series, films and a growing slate of live programming, with games included in the subscription
• A global audience supports both local programming and worldwide distribution
  • Netflix produces films and series in more than 50 countries, combining local programming with global distribution¹
• Television is Netflix’s principal viewing surface
  • ~70% of its audience watches on TV screens, according to Netflix’s July 2025 estimate—not a current watch-time split or a count of TV-only viewers. Netflix streamed through a smart TV or connected device is connected-TV (CTV) viewing⁹

Key Stats

Ad-supported viewers are not paid memberships; one membership can serve multiple viewers.¹³

Revenue Build by Segments — FY2025A

Netflix reports one operating segment, with revenue disclosed across four regions.⁸

Business Model

• Subscriptions provide recurring revenue; pricing and retention determine its durability
  • US monthly plans are $8.99 with ads, $19.99 Standard and $26.99 Premium following the March 2026 increase—the second US increase within 14 months. Paid sharing adds revenue from users outside the primary household¹ ³
• Distribution partnerships extend Netflix’s reach beyond direct subscriptions
  • Telecom and pay-TV bundles provide additional routes to customers; partnerships such as Mercado Libre in Mexico and Brazil also include Netflix within broader membership packages¹³
• Advertising adds a second revenue stream to the same audience
  • Advertisers pay to reach members on the lower-priced plan. Management reported over $1.5B of advertising revenue in FY2025 and targets ~$3B in FY2026; these disclosures sit within the single reported segment¹
  • Netflix’s own advertising platform and programmatic buying tools broaden access to its inventory, including live events, while the lower subscription price expands the entry-level offering¹
• Content investment is paid in cash and expensed over time
  • Netflix licenses and produces programming, recording content assets and recognizing their cost through amortization as titles become available. Cash content spend was $17.71B in FY2025 versus $16.42B of amortization, so cash-flow timing differs from the earnings expense⁸
• Live programming helps attract members; the broader library supports repeat viewing
  • Management expects live programming to represent ~5% of 2026 content spend and ~1% of viewing hours, yet live events accounted for six of the ten largest signup days over the preceding five years. Games, video podcasts and creator programming extend the offering, without separately disclosed financial results¹
• Revenue and profits remain visible; subscriber growth and monetization are harder to separate
  • Netflix still reports revenue, earnings and cash flow, but stopped quarterly membership and ARM disclosure in Q1‘25. Investors therefore need outside estimates to distinguish more paying accounts from more revenue per account; annual publication of What We Watched from 2027 also reduces viewing visibility¹ ³

Operating History & Forecast

Reported history and Base-case forecasts. $B except EPS and shares (M).⁷ ⁸

Regional revenue includes advertising; the discontinued DVD business contributes $82.8M in FY2023 only. FY2026 GAAP earnings and free cash flow include the one-time WBD termination fee.⁵ ⁷

• Growth slows, but revenue continues to compound
  • Revenue growth rose from 15.6% in FY2024 to 15.9% in FY2025 before slowing to 13.3% in the FY2026 Base and 9.9% in FY2028. Revenue still increases from $45.2B in FY2025 to $62.4B in FY2028⁷ ⁸
  • The regional mix shifts gradually toward EMEA and APAC. UCAN growth slows from 11.7% in FY2026 to 7.4% in FY2028, while APAC remains the fastest-growing region at 20.5%, 17.1% and 15.9% in FY2026–FY2028. Pricing, advertising and local-language programming support the regional forecasts; advertising is included within these revenues, not added again⁷
• Pricing and advertising cushion slower membership gains; they do not prevent deceleration
  • The Base does not assume a return to rapid subscriber growth. Pricing contributes on a larger installed base, while advertising becomes a second revenue stream; the growth bridge implies ~7% average-membership growth in FY2026 versus ~12% in FY2025³
• The long depends on earnings delivery at a depressed multiple, not a return to peak growth
  • Slower revenue growth can still support rising operating profit and EPS if margins expand and shares shrink. The 21.0x Base multiple requires only a modest re-rating from ~19.9x, not a return to Netflix’s former growth-stock valuation. The risk is that membership or engagement weakens enough to undermine that earnings path¹ ⁷
• Margins expand, but continued content investment limits the upside
  • Operating margin rises from 31.4% in FY2026 to 34.0% in FY2028, with expansion slowing to 100bp in FY2028 as annual cash content spend grows from $19.9B to $22.6B⁷
• Cash generation supports buybacks and per-share growth
  • The Base case reaches $14.4B of FCF in FY2028 and assumes ~2% annual net share-count reduction in FY2027–FY2028. Combined with higher net income, that lifts EPS from $3.75 in FY2027 to $4.35 in FY2028⁷

Operating Drivers

The detailed revenue-growth bridge is in Growth Decomposition.³

Annual Actual / Base vs. Street

Historical references use July 23 CIQ estimates, not pre-release consensus snapshots; the differences are not historical earnings surprises. Operating margin is operating-income consensus ÷ revenue consensus; FY2028 retains the GS reference, not CIQ consensus. Historical GAAP-versus-normalized EPS differences remain NA, as in the Tracker. Deltas use unrounded figures.² ⁷

Quarterly Actual / Base vs. Street

Street: July 23 CIQ estimates for all periods. Historical revenue and operating-margin differences are reference spreads, not pre-release earnings surprises; historical EPS spreads remain NA. Q3 FY2026 Base adopts management guidance; Q4 completes the annual Base. Deltas use unrounded figures; 0.0% denotes rounding, not an exact match.⁷

FY2027 Base quarters allocate the annual forecasts using July 23 Street seasonality; they are not independent quarterly forecasts. EPS compares GAAP Base with normalized Street. Deltas use unrounded figures.⁷

FY2026 Quarterly Bridge

• Q4‘26 is the balancing quarter
  • After Q1 and Q2 actuals and Q3 guidance, the FY2026 Base requires ~$3.66B of operating income and a 27.0% operating margin in Q4 to reach 31.4% for the year
• The bridge does not require Q3 margins to persist
  • The implied Q4 step-down still leaves the 31.4% Base essentially in line with management’s 31.5% FY2026 target

Growth Decomposition Bridge

Revenue growth is driven by paid memberships, revenue per membership (ARM) and advertising. Pricing is one component of ARM.

Read the FY2025 and FY2026 rows across: each contribution is measured as a percentage of prior-year revenue, so membership + revenue per membership + advertising ≈ total revenue growth. Totals may differ by 0.1% because of rounding.³

• FY2024 is the last company-reported bridge
  • Average paid memberships grew 15% and reported ARM grew 1%, producing 15.6% revenue growth after rounding. Advertising was included in reported ARM, so it cannot be separated cleanly
• FY2025 builds to ~15.9% revenue growth
  • Non-advertising subscription revenue of ~$43.7B divided by estimated non-ad ARM of ~$138.54 implies ~315M average paid memberships, up ~12%. The bridge is ~12.0% from memberships + ~1.5% from ARM + ~2.3% from advertising = ~15.9%
• FY2026 builds to ~13.3% revenue growth
  • Current Street revenue of ~$51.2B less management’s ~$3B advertising target implies ~$48.2B of non-ad subscription revenue. Dividing by the Street’s ~$142.77 non-ad ARM estimate implies ~338M average paid memberships, up ~7% on an annual-average basis. The bridge is ~6.9% from memberships + ~3.2% from ARM + ~3.3% from advertising = ~13.3%
• The bridge uses three repeatable calculations
  • Membership contribution = change in average paid memberships × prior-year ARM ÷ prior-year revenue; ARM contribution = current average memberships × change in ARM ÷ prior-year revenue; advertising contribution = change in advertising revenue ÷ prior-year revenue
• Q2‘26 confirms the drivers, not the split
  • Revenue grew 13.4% as memberships, price increases and advertising all contributed, but management did not quantify each contribution
• Retention and engagement determine whether the mix remains durable
  • Monthly churn remained near 2% versus a 4% competitor average, supporting further pricing. The counter-signal is engagement: 1H 2026 total viewing hours grew only 2%, while Q2‘26 mobile-app MAUs fell 3% YoY and app time spent fell 7% globally / 8% in the US. The mobile panel excludes TV screens; neither it nor a comparison of 1H hours with full-year membership estimates establishes the change in viewing per membership. Q3 retention and UCAN growth remain the next test

Guidance & Beat/Miss Cadence

Beat/Miss Cadence

Full grid in NFLX_Guidance_Tracker.xlsx.

• Revenue beat guidance in four of six tracked quarters; both misses were only 0.1%
  • Operating margin beat in five of six quarters; the only miss was the Q3‘25 Brazil tax charge
• The latest results were mixed rather than a clean miss
  • Q2‘26 revenue was ~0.15% below Street, while operating income was 2.1% above guidance. Q1‘26 revenue and operating income were 0.7% and 0.3% above Visible Alpha consensus, respectively

FY Guidance Revisions

Guide revisions are colored against the prior dated guide; the FY2025 actual and FY2026 Base rows compare with final/latest guidance, respectively. “Not issued” is unavailable guidance, not zero.⁷

• FY2025 was a guide-raise-deliver year
  • Revenue, margin and FCF all closed above the final guidance issued after the Brazil tax charge
• FY2026 has shifted from raises to delivery against a stable midpoint
  • At Q2‘26 earnings (July 16), the revenue range narrowed without a higher midpoint; the operating-margin target remained 31.5%, while the earlier FCF increase reflects the one-time WBD fee

Peer Comps

Source: Capital IQ. Market data as of July 23, 2026; medians exclude NFLX.¹²

PSKY note: Paramount Skydance — the WBD acquirer and most thesis-adjacent competitor — remains excluded from the media median while mid-integration (perimeter-distorted estimates; WBD represents the Warner assets); at full close with stabilized consensus, WBD swaps out for PSKY.

The total-universe summary covers valuation multiples only.

Recent Price Performance & Trading Context

Multi-period returns (7/23/26 close $68.89):¹

The drawdown developed in three stages, followed by a partial recovery

• Mid-2025 to January 2026 — engagement and disclosure concerns emerged
  • After Netflix stopped reporting quarterly paid-membership counts and ARM beginning with Q1‘25, investors had less visibility into subscriber volume versus pricing just as engagement concerns built. Shares fell ~30%, from ~$128 in June 2025 to $89.46 in early January—before FY26 guidance existed³ ⁹
• Q1‘26 earnings (April 16) through Q2‘26 earnings (July 16) — margin and engagement concerns intensified
  • Netflix guided Q2 operating margin to 32.6% from 34.1% a year earlier, citing front-loaded content amortization. Reed Hastings’ decision not to seek board re-election and a July 9 report that engagement concerns had surfaced in Netflix’s spring business review added to the uncertainty. Shares fell 31%, from $107.79 to $74.35¹ ⁹
• Q2‘26 earnings (July 16) — forward growth and disclosure weakened together
  • Management guided Q3 revenue growth to 11.7%, ~1% below pre-earnings Street, narrowed the top of the FY26 revenue range and moved What We Watched to annual publication beginning in 2027. Shares fell 7.3% to $68.95 at the July 17 close, then reached a $67.60 closing trough on July 20¹ ¹⁰
• July 20–23 — the shares recovered only modestly
  • Netflix rebounded 1.9% from $67.60 to $68.89, remaining 46% below its 52-week high. At ~19.9x NTM P/E, the stock still traded well below the 25.9x mega-platform median¹

The Street cut valuation more than near-term earnings

• The immediate reaction was severe, but ratings and near-term estimates largely held
  • Wall Street analysts issued 17+ price-target cuts in 48 hours with no downgrades and one upgrade. Guggenheim cut its target from $120 to $75, JPMorgan from $118 to $85 and GS from $110 to $94—its second cut in 11 days—while 2026–27 revenue, operating-income and free-cash-flow estimates moved only ~1–2%¹⁰
• The longer-duration earnings outlook weakened more materially
  • GS reduced FY2028 operating income by 4.9%; across its model vintages, FY2030 operating income fell 8.1% and free cash flow fell 10.1%. Near-term earnings remained broadly intact, but the market assigned a lower multiple to a less visible and slower long-term growth path² ¹⁰

The July 23 entry falls within the original $64–70 range

• At $68.89, Netflix was 5.9% above the post-Q2‘26 intraday low. Q3‘26 is the first operating test for the investment thesis: margin near 33.2% and stronger UCAN growth support the thesis, while a guide cut or further deceleration would require de-risking or exit¹

Balance Sheet & Capital Allocation

Balance Sheet — Q2‘26 (June 30, 2026)

Capital Allocation

Management & Governance

Leadership & Execution

• Hastings built the franchise; Sarandos and Peters now lead its next phase
  • Reed Hastings led Netflix’s transition from DVDs to global streaming, stepping down as co-CEO in January 2023. He subsequently chaired the board before departing in June 2026; the current co-CEOs had already run the business for more than three years¹¹
• The co-CEO structure pairs content judgment with product and monetization experience
  • Ted Sarandos has led content since 2000 and became co-CEO in 2020; Greg Peters, co-CEO since 2023, joined in 2008 and previously served as Chief Product Officer and Chief Operating Officer. Their respective responsibilities span programming, distribution, pricing and advertising¹¹
  • Spencer Neumann, CFO since 2019, brings prior Disney and Activision Blizzard experience; Spencer Wang leads finance, investor relations and corporate development and moderates earnings interviews¹⁰ ¹¹
• Execution has supported stronger earnings, while disclosure has become less transparent
  • Operating margin rose from 20.6% in FY2023 to 29.5% in FY2025; Netflix finished FY2025 above its final revenue, margin and free-cash-flow guidance⁷ ⁸
  • Quarterly membership and ARM reporting has ended, and What We Watched becomes annual in 2027. This weakens investors’ ability to distinguish pricing from volume—even when financial targets are met¹

M&A & Strategic Decisions

• The WBD withdrawal supports acquisition price discipline
  • Netflix declined to raise its offer after a competing bid and received a $2.8B termination fee¹ ⁵
  • The willingness to pursue a large acquisition remains a counterweight: another major transaction could redirect cash from repurchases and change the investment case

Incentives, Ownership & Board Oversight

• Compensation rewards revenue, margins and relative shareholder returns
  • The disclosed 2025 cash-bonus formula weighted FX-neutral operating margin at 65% and revenue at 35%. Long-term equity awards were split equally between time-vesting shares and performance shares measured against the S&P 500 over three years¹¹
  • Ownership guidelines require 6x base salary for co-CEOs and 3x for other executives, subject to a five-year build period. Directors and executive officers beneficially owned 1.24% in the April 6, 2026 proxy snapshot¹¹
• An independent chairman now oversees the post-founder board
  • Jay Hoag became chairman on June 4, 2026, succeeding Reed Hastings. Ten of the twelve elected directors are independent; the audit, compensation and nominating/governance committees are entirely independent¹¹
  • A governance concern remains: the board rejected Hoag’s resignation after his failed 2025 majority vote, which the company attributed to attendance. His attendance recovered to 100% in 2025¹¹
• Scheduled insider sales need to be distinguished from a fresh discretionary sale
  • Sarandos adopted a 643K-share Rule 10b5-1 selling plan on May 4, 2026, less than 3% of his proxy-reported beneficial holdings. The prearranged plan establishes potential sales, not proof that all shares were sold⁴ ¹¹

Key Debates

The complete eight-debate map remains in the supporting materials

Bear Case

• Membership and engagement may be weakening together
  • Street estimates imply FY2026 year-end paid-membership growth of ~7%. 1H 2026 total viewing hours rose only 2%, while Q2‘26 mobile-app MAUs fell 3% YoY and app time spent fell 7% globally / 8% in the US. The bear concern is slowing engagement, not a demonstrated decline in total viewing; the mobile panel excludes TV screens
• Pricing and advertising may not offset slower volume indefinitely
  • Churn near 2% shows that recent price increases held, but the next increase becomes harder if engagement per membership continues to decline. Advertising can add a second revenue stream, but Netflix does not report a separate quarterly advertising-revenue series; a shortfall versus the ~$3B FY2026 target would expose the slower membership engine
• Reduced disclosure can turn an operating concern into a valuation problem
  • Netflix no longer reports memberships or ARM and will publish What We Watched only annually beginning in 2027. If growth slows while the underlying drivers remain difficult to verify, the stock may stay near a media multiple even when reported earnings meet expectations
• The downside is meaningful before the thesis formally breaks
  • At $3.50 of NTM+1 EPS and 16.0x P/E, the Bear case is $56 per share, or −18.7%. At the 12.6x media median, the same earnings imply ~$44, making Q3‘26 operating results and the FY2027 guide the binding tests

Analyst Coverage

• Street board — $98 median price target across 44 analysts, with a $70–$135 range on the July 20 CIQ pull
• Post-Q2 reaction — 17+ price-target cuts in 48 hours, no downgrades and one upgrade. The ratings/estimate resilience supports the view that the decline was primarily a multiple event
• Selected frameworks — GS cut its target to $94; Guggenheim moved to $75 and JPMorgan to $85, while BMO remained at $135. The full range and individual frameworks remain in Supporting Data¹⁰

Glossary

Industry Primer

• Paid accounts, viewers and viewing hours are different measures
  • A paid membership is a subscription account and may serve several viewers. Audience counts people reached; watch time measures hours consumed. Someone who watches on both a phone and a television is not two paid memberships
• Streaming combines recurring subscriptions with advertising
  • Netflix earns subscription fees across its plans; the ad-supported plan also generates advertising revenue. Subscription growth depends on paid memberships and revenue per membership, while advertising also depends on viewing, available ad slots and advertiser pricing
• Price increases only work if enough customers stay
  • ARM—average revenue per membership—reflects pricing and mix, not just the sticker price of a plan. Churn measures cancellations; low churn helps price increases translate into recurring revenue rather than lost subscribers
• Content spending and content expense follow different clocks
  • Cash content spend pays for productions and licenses. Content amortization recognizes that investment as an income-statement expense over time. Capex funds other long-lived assets; it is not a substitute for content investment. Earnings and cash flow can therefore move differently in a quarter
• TV viewing is not the same as mobile-app engagement
  • Connected TV (CTV) means internet-delivered video on a television set. Netflix’s viewing-hours report covers all devices; mobile-app panels exclude TV screens, and Nielsen’s TV measure includes both streaming and linear television. Those measures answer different questions and should not be treated as interchangeable⁹

Detailed Industry Terms

ARM

Average monthly revenue per paying membership—the revenue generated per paid account; one membership may cover multiple viewers. Netflix stopped reporting the measure beginning with Q1'25.

Revenue per membership

The economic driver that includes pricing, plan mix, geography and extra-member revenue. In estimated periods, the pitch uses the Street's non-advertising ARM construct.

UCAN

United States and Canada, Netflix's largest and most highly monetized reporting region.

EMEA / LATAM / APAC

Europe, Middle East and Africa / Latin America / Asia-Pacific, Netflix's other reporting regions.

TV-screen viewing

Video watched on a television set, including Netflix through a smart-TV app, streaming device or games console. A TV screen can show streamed video as well as broadcast or cable channels.

CTV

Connected television: a TV connected to the internet directly or through a device. Watching Netflix on that screen is CTV viewing; watching on a phone is not.

SAM

Serviceable addressable market—the revenue opportunity in the countries and categories a company currently serves.

Ad-supported tier

A lower-priced Netflix subscription that also generates advertising revenue from viewing.

Advertising upfront

The annual sales cycle in which advertisers commit spending ahead of the coming programming season. Companies may announce the outcome; it is not a scheduled earnings report, and commitments are not yet recognized revenue.

Churn

The share of subscribers who cancel during a period; lower churn indicates stronger retention.

Engagement

How much the audience watches, commonly assessed through total viewing hours or share of television usage.

FX-neutral

Growth calculated at constant foreign-exchange rates to isolate operating performance from currency movements.

Content amortization

The accounting expense that recognizes capitalized content costs over the period that titles are expected to generate viewing.

FDSO

Fully diluted shares outstanding, including the potential dilution used in per-share valuation.

NTM

Next twelve months—the forecast financial period beginning at the valuation date.

P/E and PEG

Price-to-earnings multiple; PEG compares that multiple with expected earnings growth.

EV / EBITDA

Enterprise value divided by earnings before interest, taxes, depreciation and amortization.

FCF

Free cash flow: operating cash flow after capital expenditures.

Basis point (bp)

One one-hundredth of a percentage point; 100 bp equals 1 percentage point.

ETF / SPY / QQQ / XLC

Exchange-traded fund—a tradable basket of securities. SPY tracks the S&P 500; QQQ tracks the Nasdaq-100; XLC tracks the communication-services sector.

Factor hedge / single-name hedge

A factor hedge reduces a shared exposure, such as the equity market. A single-name hedge pairs the long with a short in another company; the result depends on relative performance and introduces risks from the short.

NTM+1

The next twelve months of earnings viewed from the price-target date, one year after the research anchor. For this pitch, the July 2027 target uses approximately 2H 2027 and 1H 2028.

EV-weighted return

Expected return across the scenarios, calculated by multiplying each scenario's return by its probability and adding the results. Here EV means expected value, not enterprise value.

NAV

Net asset value—the value of the portfolio after liabilities, including cash. Position weights are measured against total portfolio NAV.

MAU

Monthly active users. The mobile-app estimates cited here measure app use, not paid memberships or Netflix viewing across all devices.

MSD CAGR

Mid-single-digit compound annual growth rate.

ROIC

Return on invested capital—operating profit after tax relative to the capital invested in the business.

Rule of 40

A growth-plus-profitability measure. For each company, this pitch adds revenue growth and EBITDA margin; cohort figures are medians of company scores.

Footnotes

1. Anchor and Q2‘26 record: July 23, 2026 close of $68.89 and dated peer observations from Capital IQ, NFLX_COMPS (7-23-26) in Trading Comps_v2.xlsx. The July 20 PEG comparison and analyst price-target board retain their historical dates. Q2‘26 results, Q3 guidance, FY2026 guidance, advertising target, engagement-report cadence and repurchases come from Netflix’s July 16 shareholder letter. ↩
2. Sell-side reference: GS GIR Q2‘26 Earnings Review (July 17), Q2 Preview (July 5) and Q1 Review (April 17). GS figures are attributed reference points, not house assumptions. ↩
3. Growth decomposition: FY2024 is company-reported. FY2025–FY2026 average memberships are inferred from non-advertising revenue and Street ARM estimates; they are distinct from year-end membership estimates. Calculations and sources. ↩
4. Q2‘26 10-Q: filed July 17, 2026, accession 0001065280-26-000212. Primary source for regional revenue, cost growth, content obligations, repurchase detail and the remaining authorization. ↩
5. Warner Bros. Discovery fee: Netflix’s 2026 8-Ks document the transaction sequence and $2.8B termination fee; the Q1‘26 10-Q records the fee outside operating income. ↩
6. Per-share basis: Netflix’s 10-for-1 split became effective November 14, 2025; all per-share figures are split-adjusted.
7. House case: NFLX_CASE_SUMMARY.xlsx supplies the annual and quarterly Base forecasts, content-amortization schedule and scenario calculations; the Guidance Tracker carries that Base for guidance and Street comparisons. FY2027 quarters allocate annual Base revenue, operating income and EPS using Street quarterly proportions; margin is operating income ÷ revenue. NTM+1 EPS uses the approved FY2027/FY2028 average; Street EPS is CIQ normalized consensus, while Base EPS is GAAP. Model sources and calculations. ↩
8. Financial statements: The Q2‘26 10-Q supplies the balance-sheet snapshot and repurchase detail; the shareholder letter supplies free cash flow and the $729M Brazil payment. The FY2025 10-K supplies annual historical financials and regional revenue; the Q4‘25 shareholder letter supplies the regional FX-neutral reconciliations. Net-debt construct reconciliation and the EPS bridge remain in Supporting Data. ↩
9. Audience, churn and engagement: Netflix hours cover all devices; Sensor Tower measures mobile-app use; Nielsen measures US TV-screen viewing, including streaming and linear channels. Churn comes from Antenna. The ~70% TV figure is a company-attributed audience estimate from July 2025 reporting, not a current watch-time split. Viewing report; TV devices. Full scope and sources remain in Supporting Data. ↩
10. Street and market context: July 17–20 analyst-reaction coverage and the July 20 CIQ board; Netflix’s Q2‘26 call supplies management commentary. The $670B serviceable addressable market comes from the Q1‘26 earnings interview and is cross-checked against the Q2‘24 shareholder letter. ↩
11. Management and governance: January 19, 2023 leadership announcement, April 16, 2026 DEF 14A (ownership as of April 6; disclosed 2025 incentive design) and June 5, 2026 annual-meeting 8-K. The Q2‘26 10-Q reports the May 4 Rule 10b5-1 plan. Full compensation, board and ownership detail remains in the companion. ↩
12. Peer conventions: NA means an input is unavailable. NM means a multiple is undefined or exceeds the ±200x cap; PEG requires positive P/E and EPS growth. Negative multiples within the cap remain numeric. P/E and EV/EBITDA medians use positive observations only; other medians exclude text, not valid negative values. ↩
13. Key Stats and distribution: management disclosures from the Q4‘25 shareholder letter, Q1‘26 shareholder letter, May 2026 Upfront and 1H 2026 engagement report. Periods are shown beside each statistic; viewers and paid memberships are different measures. ↩
14. Hedge instruments and peers: fund objectives from SPY, QQQ and XLC; operating evidence from Spotify Q1‘26 and May 2026 Investor Day, Roku Q1‘26 and Disney Q2 FY2026. Hedge preferences are analytical judgments, not guarantees of an offset. Detailed comparisons. ↩

Detailed source extracts, methodology and forensic checks remain in Supporting Data.

Sources

• Company disclosures: Netflix’s July 16 Q2‘26 shareholder letter, July 17 10-Q, FY2025 10-K, prior letters and April 16 proxy support financials, guidance, repurchases and governance. The filing/accession index locates the original exhibits; it is a compiled retrieval aid, not a separate primary source. The July 16 earnings call supplies management commentary
• Market data and consensus: S&P Capital IQ observations dated July 23, 2026 in Trading Comps_v2.xlsx, Case Summary Peer Multiples and the Guidance Tracker supply valuations, peers and forward Street references. The July 20 analyst-target board and separately dated short-interest records retain their own dates; the current portfolio mark does not reprice the case
• Sell-side research: Goldman Sachs’ July 17 Q2 review, July 5 preview, April 17 review and retained post-Q2 model support attributed operating estimates and channel evidence. A bank forecast is not consensus or an independent house assumption
• Audience, retention and advertising evidence: Netflix’s 1H 2026 viewing report, Antenna churn, Sensor Tower mobile-app panels, Nielsen US television-screen measures and Visible Alpha estimates answer different questions. The retained evidence and definitions preserve those scopes. The company-attributed July 2025 audience estimate is not a current watch-time or device-deduplication measure
• Competition, hedges and trading context: Dated issuer disclosures for Spotify, Roku and Disney support business comparisons; fund objectives and July 17–20 earnings-reaction coverage support factor exposure and the trading narrative. Detailed comparisons and retained sources distinguish analytical hedge preferences from executed trades or calibrated offsets