Netflix is undervalued: forward P/E 18.5 is its lowest in years, and DCF fair value of $116 vs $69.72 implies 65% upside over 12 to 18 months. The 6% cut reallocates staff toward AI; short-form competition is a risk, but he is optimistic, holds NFLX as his largest position, and would add at these levels this year.

We have exciting news for Netflix stock investors, as the company has announced it will lay off 6% of its workforce. I actually think the company is just changing the type of employees it wants to hire.

At a time when the business is growing and the factors for success in streaming are increasing, I believe Netflix needs more manpower, not less. However, I think they may need a different type of staff, and that is the reason for this disruption.

Let me share these details with you in the announcement, what I think about Netflix stock, and tell you about my fair value estimate for Netflix. Netflix said on Wednesday that it would cut 6% of its workforce, or about 1,000 employees, marking its biggest staff reduction since 2022.

If you recall, at the end of 2022, US central banks were rapidly raising interest rates, and companies, including Netflix, were fearing an impending recession . Thus, they prepared in advance by laying off workers and getting ready for further cost-cutting efforts.

The recession never happened, but companies didn't rehire all the people they laid off, and profit margins have increased significantly since then.

Based on an email to employees from co-CEOs Ted Sarandos and Greg Peters, the cuts will include global operations with a focus on product, human resources, technology, and legal departments.

I believe these are reductions in certain categories, and there will be additional investments in other categories, particularly in roles related to artificial intelligence, in supporting AI-powered content creation, and in improving AI productivity .

I think Netflix will be at the forefront of employing and integrating artificial intelligence into its operations, because this is a company that seems likely to benefit or not benefit overall, given that there is a lot of content being created by studios that exclusively use artificial intelligence, and this increases competition .

So, I'm not saying that artificial intelligence will be entirely positive for Netflix. However, Netflix could integrate artificial intelligence into its production services , reducing the cost of producing content.

Investors were unable to decide whether this cost-cutting announcement was good news or bad news. Initially, the stock rose 0.3% on Wednesday before falling back, and as of the time of this video, Netflix shares were down more than 1% on Wednesday.

The management team added that Netflix will continue to invest heavily in high-impact areas, which made me think this is not an effort to cut costs overall, but rather a shift in how those costs are allocated.

Netflix wants to invest more in certain categories, but does not want to increase its overall number of employees. Therefore, they are reducing roles in certain categories so that they can add roles in other areas.

Of course, the timing is interesting as Netflix is scheduled to announce its earnings next week after the stock market closes on Tuesday, October 20. Netflix is the largest asset in my investment portfolio, so I am eagerly awaiting these results.

In the company's most recent earnings call, Chief Financial Officer Adam Neumann responded to a question about the company's slowing growth in engagement and revenue, saying that they continue to see healthy trends in member acquisition and retention, and that recent pricing adjustments are working well . Investors were not convinced by this response.

The share increased slightly in the first half of 2026 after being slightly high in 2025. The streaming industry in general is growing faster, and content consumption is increasing at higher rates than slight ones , so Netflix is losing viewership or market share of content consumption habits among viewers.

The most important competition, in my opinion, is short content. People are spending more time on TikTok, Instagram Reels, and YouTube Shorts, and that has been a negative for Netflix.

Whenever I see a company laying off employees, I go back and check the revenue figures for each employee they have. I want to see the direction this is heading in, and whether it justifies the cost-cutting efforts or not.

Typically , when I see a decrease in a company's revenue per employee, it's a sign that it may have become bloated in terms of the number of employees. But I don't see that with Netflix.

In fact, I see the exact opposite. Its revenue per employee has grown significantly since 2017, when it was generating around $2 million per employee . Now, that figure has exceeded $3 million per employee.

Therefore, their position is sound with regard to revenue per employee and the growth trend of that revenue.

Once again, this points to further evidence that Netflix is not trying to reduce its overall staff, but rather seeking to reallocate its staffing budget.

Netflix shares have fallen significantly since last year. Ever since initial rumors began to surface about Netflix's intention to make an offer to acquire Warner Bros. Studios.

In the end, they withdrew their offer and received exorbitant fees for their efforts. However , investors have become dissatisfied with Netflix stock since that moment.

Netflix stock is now trading at a forward price-to-earnings ratio of just 18.5, the lowest trading level for the stock in several years. Netflix stock also appears to be undervalued when valued based on discounted cash flows.

I calculated a fair value for the stock of $116. The market price today is $69.72. This leaves me room to rise by 65% over the next 12 to 18 months.

So you can see, based on these calculations, why I am so optimistic about Netflix stock, and why I have made Netflix stock the largest position in my portfolio, and I am interested in adding more if the stock stays at these levels throughout this year, all other things being equal.