$NFLX · Everything Money · 2026-10-29

Netflix has just done something strange. It announced its earnings, exceeded Wall Street expectations, and achieved remarkable profit growth, yet its stock declined. In fact, guys, the stock is now down almost 30% this year, and is very close to its 52-week low.

So how is it possible for a company to make more money than ever before while its stock continues to fall? And why did billionaire investor Bill Ackman just start buying it?

If you own shares in Netflix, you need to understand exactly what is going on.

Let's start with the original story because it explains a lot. Netflix was founded in 1997 and, believe it or not, started by mailing DVDs to people's homes.

So, it has been around for a long time, but back then, it was sending DVDs to people's homes. No late fees, and no need to drive to the store . This simple idea alone crushed the old video rental king, "Blockbuster," which eventually went bankrupt during the financial crisis.

But Netflix didn't stop there . In 2007, I made a big bet on live streaming, which allowed you to watch movies instantly over the internet. Think about it. She essentially destroyed her successful disc rental business before anyone else could .

Then in 2013, she took her boldest step yet. She began producing her own programs such as "House of Cards" . That turned Netflix from a mere intermediary showing other people's films into a fully-fledged Hollywood studio, and it has continued to change.

Since 2022, Netflix has added ads, restricted password sharing, and expanded into live events, sports, and even video games. Today, it is a much larger entertainment platform than just a place to stream movies .

So, what makes Netflix so special today? Well, a few things work together. First, it has truly global reach. It can release a show for the entire world at once without having to make separate television deals in each country individually.

Secondly, it has become a leading force in delivering programs from other countries. A decade ago, the percentage of non-English viewers was less than 10%. Today, this percentage is more than a third.

Thirdly, it has an ingenious recommendation system that learns what you like and keeps you watching for hours, similar to YouTube.

Moreover, it is a well-known brand, has ample liquidity to fund programs, and it has simply become a habit. People open the Netflix app without even thinking about it.

This is what my wife and I do. Whenever we want to find something to watch, we open Netflix. Now, guys , when people make you their first choice, that can be said to be a strong competitive advantage.

Competitive advantage is like water around a castle. It's what prevents competitors from entering. And Netflix's advantage is not just one magic trick . Rather, it is all of these things combined.

And now, here's a number that will surprise almost everyone. When you measure Netflix based on actual viewing time, you'll find it's not as dominant as you might think. In the United States, Netflix recently captured about 7.7% of total television viewing time.

So, guys , at 15.8% on YouTube , that's more than double what people watch on Netflix.

Let this fact settle in your minds for a moment. The free video site, where anyone can post , commands more watch time than the king of paid streaming. Yes, Netflix has crushed traditional television, but now it faces a much tougher opponent: an endless ocean of free entertainment vying for your attention every day.

And now, a quick note. Netflix effectively stopped reporting its subscriber count last year, 2025. It now wants investors to focus on its revenue, profits, and viewership volume instead.

Now, guys, Tim just said that, and I agree with them. I think it's a good idea. They are so large, and they have so many subscribers, that subscriber growth is no longer the metric that really matters . What matters is how much people watch it.

So, let's talk about this year full of ups and downs. Even as the business grew, the stock suffered a sharp decline. Remember, it's down by about 30% this year alone.

But if you go back to its all-time high, it is now trading approximately 51% below that level. It fell by another 5% the day after the latest earnings report was released. Last February, Netflix nearly bought the giant Warner Bros.

Discovery studio. But when a competitor made a higher offer, Netflix withdrew rather than pay an exorbitant amount.

She even received $2.8 billion in termination fees when the deal fell through, and the stock jumped 14% amid investor approval. Bulls say Netflix was smart not to pay too much.

The bears say she may have missed an opportunity to own a treasure trove of famous shows and movies.

Guys, just as we know in this channel, you may have indeed lost the treasure, but if you pay a high price for it, you are harming the shareholders. This is the same thing we say about any stock ; the company's story may be exceptional, but if you pay too high a price , it will lead to poor returns.

In fact , I would commend Netflix for being cautious and saying, " Listen, a very high price is simply too high." " We cannot justify that."

But then in March, prices in the United States were raised again. Her standard plan has increased from about $18 to $20 per month. This is a real test of how willing customers are to pay.

During the summer, some smart partnerships were struck, such as collaborating with a major French television broadcaster to add local news and sports.

But October brought the biggest news of all. Netflix laid off about 1,000 employees, roughly 6% of its workforce, and made a radical change to the team responsible for its shows, bringing in Peter Rice, a former Disney executive, as its new head of content.

Now, such a change is not evidence of the failure of the old plan, but it is a strong indication that management believes it can deliver better. The fact that all of this is happening at the same time is a major reason why investors are feeling extremely nervous.

Over the past three years, the stock is still up by more than 30% even though last year was extremely difficult. It is clear that Netflix is betting on itself. It repurchased its shares for a record $4.8 billion in the last quarter alone, with more than $22 billion approved for continued buying.

When a company buys back its shares when they are cheap , it boosts the share of each remaining shareholder in the pie . So, even if you own the stock and just wait while they keep buying back shares, your share of that profit will continue to grow and grow and grow.

So, back to their profits. What did the actual profits show? Well, on the surface, it was excellent. Revenue grew by approximately 12% to reach $12.9 billion. But the real star was the profit.

Operating income jumped 37%, and the operating margin, which is the portion of each dollar the company retains as profit, rose to 34.6%.

Netflix even exceeded the profit figures that Wall Street had predicted . So far, so good, right ? In addition, growth was well distributed throughout the world. The United States and Canada, which together account for about 44% of business volume, recorded growth of 11%.

The Latin American market grew at its fastest pace at 17%, and India just had its best quarter ever.

Quarterly profits amounted to approximately $3.7 billion, and the company generated $2.9 billion in cash, i.e., actual cash flow. So, the money is still flowing .

The whole concern is about how quickly it will grow from now on. But that's when the feeling of tension began. First, Netflix acknowledged that part of those additional profits came simply because of the timing of some expenses.

In other words, some costs were carried over to a later quarter. Therefore, those extra profits may not last long.

Secondly, and more importantly, its growth has begun to slow down. Revenues increased by nearly 18% compared to the previous year. Now, it is up by approximately 12%, and when a stock is priced based on rapid growth, any slight slowdown can cause panic among investors.

Guys, I want to remind you that this is the first topic we're talking about on this channel. Just because a company has grown a lot in the past does not mean that the future will be of the same quality.

So, when you price it today based on past growth, you are likely paying an inflated price for the future. The larger a company becomes, the more difficult it is for it to continue growing at the same pace it achieved in the past.

Now, there were also future guidelines. The guidelines are simply the company telling us what it expects to happen next, and they have been disappointing . For the full year, Netflix is forecasting revenues of around $51 billion, but expects growth to slow slightly in the next quarter.

Its earnings forecast for the next quarter also came in slightly below expectations. Its profit margin is expected to decrease slightly, partly because those layoffs cost money upfront.

You may be confused about that, but when they lay off employees, they pay out a lot of severance pay. This is money paid in advance. These are one-time restructuring costs.

The biggest disappointment, however, was the advertising. Netflix was forced to lower its advertising revenue forecast for the year by about $300 million, and admitted that its advertising technologies and partnership agreements were behind schedule.

But here's the important part. This advertising sector continues to grow at an astonishing rate, by more than 80% this year. Only at a slower pace than she had promised.

Advertising still accounts for only about 5% of Netflix's total revenue. Therefore, subscriptions remain the real driver, by a large margin. This does not mean that the business is collapsing.

The business is still very profitable. The advertising slump is just a setback, not a collapse.

But after years of rapid growth, Wall Street wanted more. Wall Street hates promises that are not kept. Here's an interesting turn of events. While many investors were heading out, billionaire investor Bill Ackman had just started a new center in Netflix.

This means that before this quarter, he had no position, and now he has a new position.

When a big investor like Ackman buys a stock that has taken a big hit, everyone pays attention . This tells us that at least one smart financial manager believes the market is extremely negative about Netflix's future.

This is no guarantee of anything, but investors like him tend to buy when they believe that a great business has simply lost popularity with the general public . So let's balance both sides fairly, and focus on the business, not the stock price.

Guys, if you're in our community and you have our program, the first thing you should do is switch to Netflix , and I'm going straight here to our AI. We will sit here and ask for clarification of the reasons for optimism and pessimism regarding the stock.

As I conduct my research, I can see these optimistic and pessimistic cases. So let's unpack it now. First, cases of optimism. The first optimistic scenario: Netflix's global reach is a real weapon.

As I mentioned before, she can launch a show for the entire world at once.

Its total audience is approaching one billion people. However, it still reaches less than half of the homes it can actually reach. So there is ample room for continued growth around the world, especially in fast-growing places like India, where viewership recently jumped by 24%.

No smaller competitor could give the shows and creators an audience of this size. The second optimistic scenario: It has real pricing power . This simply means that they can raise prices without losing too many customers.

If they raise their price by 10%, you are unlikely to see a 10 % decrease in their memberships.

Netflix continues to raise prices, such as the increase in March that I mentioned, yet fewer customers are leaving compared to before. This is a strong indication that people believe it is worth the money.

Because it can offer its current programs to more and more viewers without spending much extra, those higher prices go directly into profits. Regarding the third upward scenario, advertising is a completely second source of income that has been added directly to the core of the business.

The cheaper subscription plan with ads is attracting budget-conscious viewers, and Netflix plans to roll out ads in 15 more countries next year.

As we have seen, advertising still makes up a very small part of revenue today. And if it can evolve into something much bigger, it could really enhance the whole business . Because Netflix already owns the audience , every additional dollar from advertising is extremely profitable.

But those with a pessimistic outlook also have serious points to make. The first pessimistic scenario, which is the most important. As I mentioned before, Netflix is fighting for your attention with free entertainment, and it may be slowly losing.

YouTube already commands twice the viewing time of television, and has a huge cost advantage because millions of creators make its videos for free while Netflix has to spend billions on its own programming.

We are creating this channel. YouTube does not give us a single dollar for producing content. They only give us money after the video is posted and many people have viewed it.

And here lies the deceptive aspect. You can happily remain a Netflix subscriber while spending more and more of your time elsewhere.

One research firm even claimed that Netflix has lost some subscribers in the United States in recent months. Netflix responded very strongly. She said that the company overlooks some subscriptions and that customer loyalty has actually improved.

However, this shows how closely people are now monitoring even the smallest crack. In fact, I recently read that one of Netflix's problems is a decrease in total viewing time, but subscribers haven't left.

So, people don't watch as much , but they keep their subscriptions. Is this an acceptable direction for work? I bet they're not fans of that.

The second pessimistic scenario is that growth in its richest markets may have peaked. In its largest markets, many who wanted Netflix already had the service. Therefore, with fewer new customers, Netflix has to grow further by charging higher fees to its existing customers.

There is a limit to what can be achieved before people start to object. This is a completely different kind of growth compared to attracting millions of new, enthusiastic fans.

It is more dangerous. The third pessimistic scenario is that producing successful programs is a never-ending and costly task. Unlike a software application that you build once and sell forever, Netflix has to keep producing success after success year after year, each one costing a fortune and potentially failing completely.

The leadership change you mentioned, coupled with the expensive new bets on live sports and video games , all increase the real risk that things won't go as planned at a time when the pressure is mounting.

If these new bets end up costing more than they bring in, profits could be hurt for a while . The old question about Netflix was simple. How many subscribers can she add? But as I said, Netflix no longer even reports that number. That era has essentially ended.

The new and more difficult question is: Can Netflix retain its share of your attention, continue to generate more revenue, and continue to grow as its largest markets slow down ?

Do you remember the $2.8 billion termination fee? It boosts cash flow and profits for this year. This means that the real, recurring cash that Netflix earns, the cash it can count on each year, is slightly less than the big headline figure, and we will mention that here when we review the numbers.

So guys, yes, the stock price is $64, but that's not the real price of the company. The company's true value is $272 billion. This is the market value. The next thing I look at is the value of the organization. $294 billion.

This difference of $22 billion is essentially their debt.

Well, guys, last year they generated $11.4 billion in free cash flow. The average for the past five years has been 6.8, but remember that included the $2.8 billion. So, in fact, their five-year average is closer to $6 billion , and their one-year average is about $8.5 billion .

However, a debt figure of $22 billion isn't so bad when your free cash flow for the past year was around $8 billion. The next thing we look at is the return on capital. And guys, it's tempting and getting more and more attractive.

The five-year average was 17.6%, and the one-year average was 25%.

Now, given how far Netflix has come as a company, this is a measure of quality at this stage . This is a company that deserves a premium in the market.

Next, the price to free cash flow, 24. Again, the figure is slightly exaggerated due to the $2.8 billion. But look at this, guys, their profit margin. The profit margin for 10 years is 18.3, for 5 years 22, and for one year 30, taking into account that $2.8 billion .

If you exclude the $2.8 billion , their profit margin would be around $12 billion , which is still 25%, higher than their performance in five and ten years. Therefore, their profit margin continues to improve, even excluding the $2.8 billion figure.

Guys, believe me, their growth rate 10 years ago was much higher than it is today. Guys, another metric I like is that their gross profit is close to 51%. For every new user they acquire , and for every dollar of revenue they generate, more than half goes into net profit before overhead and taxes.

This is how you make profits grow more and more.

Guys, we have six checkmarks: high returns on capital, they're buying back shares, cash flow has been rising for the past five years, net income is rising, revenues are rising, and they can easily manage their debt with free cash flow .

Only the five- year price-to-earnings ratio and the five- year price-to-free cash flow are slightly high , even including that large figure of $2.8 billion.

Furthermore, it will include a free PDF about Netflix covering everything we've talked about in this video and more. So, let's check and see what the analysts think about the future of this company.

Well, they seem very optimistic. $3.60 per share as earnings this year, to grow to $6.46 over the next four years. Growth of 40% over the past year, followed by 6%, 20%, 19%, and 18% growth in earnings per share.

So, even with this slowdown in sales , analysts remain optimistic and are looking at revenue growth. Growth continues to slow, at 13.5 %, 11.3%, 10%, 9%, and 8%.

Then, if you look at earnings and free cash flow, you will find that free cash flow has always been higher than earnings, but the gap is shrinking. I would still delete that profit margin line, even though many might argue otherwise, and I don't blame them .

I will focus on free cash flow. I will use percentages of 16%, 20% and 24%. The reason is that the sum of 2.8 billion is included in these accounts. Now remember, if you exclude the 2.8 billion from the profits, they have achieved a 25% return.

Therefore, I can still be very conservative here regarding the free cash flow margin line as the numbers converge . But remember, it's a company that still has to spend a lot of money to produce content.

Next, what is the price-to-earnings (P/E) ratio I will assign to this company 10 years from now? Well, guys, returns on capital are improving. It is an outstanding company. I think they have a strong competitive advantage , but I think YouTube is a formidable competitor .

Therefore, I would give it an excellent price-to-earnings ratio , but not as high as people might assume. I have placed 16, 19 and 22 times the profits.

The stock is currently priced at $64 per share. I have a low price at 31, a high price at 92, and an average price at 55. So, it is already lower than that. And of course, with a higher return comes a lower share price.

In order to feel comfortable buying it, I need to pay $22 at its lowest point, $61 at its highest, and $37 on average. So guys, I'm going to add it to my watchlist at $40 per share.

Not because this is the right price for me, but because I want to receive an alert so that I can re-analyze the company and make sure that the price is right for me at that time, and if its fundamentals have improved.