$NFLX · Value Investing with Sven Carlin, Ph.D. · 2026-11-04

Netflix's stock has been in a steady decline for a little over a year, but now it's starting to get really interesting because, despite the stock crash, all the numbers look very positive.

Profit growth, revenue growth, and business growth all look good.

So it's time to do a deep analysis of Netflix, the risks, the rewards, the situation, and what Wall Street sees as a problem may not be what you, as an investor, are focused on.

if you look at the stock's long-term chart, this volatility is normal for a growth stock because so much depends on expectations. However, the trend there is strong, and therefore we know it is an accumulator stock and is very likely to continue to grow in the long term.

If you can get a cumulative stock with a price-to-earnings ratio of 18, that's not bad. Consider the market value of 255 billion. But Netflix is the fallen "Angel Fang," and therefore probably still the same company; It may have been exaggerated in the Fang era, but it is very interesting now.

My wife and I are a little disappointed with the fourth season of "Lupin". Too much exaggerated drama. They are pushing things, I don't know, in an effort to retain subscribers.

It is no longer as complicated as it used to be, but I have only seen half of it.

In any case, there are other stories, exciting stories, new things, people follow them, then new things come along, and so on, which means that despite what you may say, the cancellation rate is very low. The number of users is actually growing.

They used to report it up to the first quarter of 2025, then suddenly stopped. Only at the end of the year did they say, well, that's the number, and that's it, it's still growing, albeit much more slowly than in the past.

However, the first quarter of 2025 is a very interesting moment in time. When they said they would not report the number of paying customers, what happened to the stock? The stock has fallen and has already collapsed.

When it comes to numbers, yes, if you look at households and the number of people watching, they are approaching one billion viewers. So this is a great number that can be used.

Also, perhaps most importantly, Netflix is able to raise prices in line with inflation consistently without much trouble. The cancellation rate is not high. It's not like you're going to cancel your subscription over a dollar or two here and there. You practically don't feel it.

Here we can see how those prices rise over time, which means there are no real price wars. There may be some wars, but not on a large scale. You simply stick with the service. Therefore, it is a great business.

It has predictable cash flows and a large subscriber base.

They have started adding different categories that include ads and we will see if that works. Advertising revenue was expected to reach 3 billion this quarter. But they only made 2.7 billion because of some technical and publishing problems and things like that.

It is something worth noting. I hope this doesn't affect other work, which could be a problem. So this is something that is still unknown.

However, the company is still growing, still exists, and still doing its job. There is nothing wrong with that. But the problem is not with growth, but with the number of hours watched.

Suddenly, after Netflix created this metric, Wall Street became focused on viewing time. The main question is: Do you watch Netflix more or do you watch me?

Perhaps if Netflix gave me a billion, that would be a different story. But the point is that Wall Street is worried, and they addressed this issue in their recent earnings press release as well. Anxiety is related to views, hours, and growth.

Subscribers' response to price increases is consistent. So this is a stable interaction, and they should focus on the quantity, quality, and variety of viewing. This remains in a healthy condition. But of course, viewing time decreased slightly.

From an advertising perspective, this is a negative if you view advertising as a major growth engine. I don't see it that way. It may complement, and it may consume part of the other views, but that's a different story.

"Wall Street" focuses on this issue based on an article in the "Wall Street Journal". Wells Fargo estimates a 9% drop in watch time, which was one of Netflix's greatest innovations and is now working against it.

I think that with maturity and with more competition, you only have 24 hours in a day. That's how things go. The main factor is that it is a highly competitive environment. It's a growth environment because we're tied to our screens and we have more subscriptions.

Ten years ago, people were already wondering whether or not to buy Netflix. Now everyone has it, I read somewhere, up to 18 insane monthly subscriptions.

We look at the trends there, and Netflix has lost one percentage point, which is a significant loss in a market that has been growing for a year. Whenever Wall Street sees losses, it may be an indication of structural problems and less long-term pricing power, which means there are problems.

This is why you see the stock 60% lower compared to Disney. It's cheaper than Netflix, I think, at least for me.

We will discuss Disney tomorrow because we cannot analyze Netflix without discussing Disney. Apple, Amazon Prime, all of those things. In that market, Netflix is losing market share.

The market is growing, but Netflix is weakening.

Now let's move on to the conference call to address the key factors that concern analysts and how management is dealing with them. The first question deals with short videos. How will they deal with that?

How will they change feelings towards Netflix when more of you are spending time on TikTok or short videos?

Then they discuss the quality of the content, trying to deliver the best. But when I read this, I find it difficult to achieve. Yes, consistent quality and quantity, but competition does too.

The next question, participation by region, Formula 1 in France, and growth in India. They are refocusing on content and trying to sell the idea to analysts, but we as analysts want numbers.

India grew by 24% on an absolute basis. This is good.

However, I think we all realize that the content exists. We will not cancel. I think Narnia is coming out next year, so I can't cancel because that's something we're all going to have to watch on a Saturday night, but there are other situations like the firing of the head of content and the appointment of Peter Rice.

This is a major shift, especially since it leads to another unknown.

Bella Pajaria was there for the past decade, and now we have Peter Rice, who was effectively fired from Disney in 2022.

So, once again, there is a big question mark. Then a good and straightforward question: Can Netflix double its revenue growth in 2027? What are the main levers for getting there, and is this sustainable?

This practically calls into question the entire investment premise.

Management responds that it is working on its three revenue drivers: membership growth, pricing, and advertising. Those are the main factors. If they can continue to increase their membership globally, raise prices, and add more advertisements, that's a positive thing.

They expect to achieve strong revenue growth through 2027 through this, and they want to increase their viewing hours even faster. They are not satisfied. They are working on it.

I think this will be extremely difficult, given the volume of content being posted online. But the key here is that even with the modest growth in watch hours and the fee growth they achieve, and delivering greater value to members in terms of quality, quantity, and variety, they should be able to maintain their business model and grow over time, and that gives sustainability to the business.

We are looking to maintain double-digit revenue growth, which will later translate into 15-20% earnings per share growth with share buybacks, depending on the investments made by the new chief content officer.

The goal is to increase margins, increase free cash flow, and expand the base they already have.

If they can do that, Netflix, as we will see later in the pricing, will be an interesting business to own. In short, it's a mature business with a low cancellation rate, still growing, with an excellent profitability position and great margins, so it looks good.

The downsides and risks are undeniable while you're watching this. There is strong competition. Advertising depends on the prices that people are willing to pay for advertisements.

Some other platforms, such as Facebook, may be more direct. Netflix will likely also need more targeted advertising, and therefore the market may be smaller.

Then they need to look for new content, sports, and massive inflation that we will see tomorrow as well with Disney, podcasts, and continuous mitigation, and this always represents a question mark.

But if we look at the financial data, it looks good and positive. If we look at the long-term trend that we've already discussed, revenues, and the tremendous growth there over time, it's true that revenue growth is slowing down.

If you look at this purple line, you'll find that revenue growth was enormous when people were happy to pay high ratings for Netflix. And now we've dropped, well, that was the post-pandemic effect, and we're now at 11% which is still great revenue growth.

But more important than revenue growth is this line. As the scope of work expands, this is the net profit margin that has now become very high. There was a benefit of a failed acquisition cancellation fee of $2 billion that had a slight impact on this, but a net profit margin of around 25% is huge and leads to consistently higher profits as we expand.

The number of shares that I will later use to calculate the share of the stock. This is the addition that served as a bonus for the company. The cost of revenue does not rise as much as revenue does, which is a good sign for the business.

Content assets, these are the contents they invest in, are not growing like crazy as in the past, which is another positive thing. They have some debt that decreased even in the last quarter, and that's good.

The treasury carried out massive buyback operations amounting to 11 billion. This is amazing.

Then if we look at the additions to content assets, they have spent 15 billion, and it is likely to reach 20 billion. Depreciation is slightly lower, but the gap between depreciation and spending on content assets is shrinking.

Spending is likely to be around 20 billion over the next twelve months. These are the past twelve months. Depreciation also amounts to 17.5 billion.

I was a little concerned here when the spending on content was high compared to the lower depreciation, but this balances out over time. Then if we look at buybacks as the stock price falls, we find a huge increase in buybacks.

It is rare on Wall Street for management to push for buybacks when the stock is cheap. So, this is good work.

Free cash flows are growing, approaching 10 to 11 billion. I will use the figure of 11 billion. There were some adjustments, but well, as an estimate of free cash flow for 2026, free cash flow per share is likely to grow faster than earnings per share due to share buybacks and financial stability. Everything looks good.

Here is just a calculation of free cash flow, 11 billion divided by 2.58 shares per share.

Before we move on to intrinsic value, let's discuss the optimists versus pessimists thesis. The most prominent optimist is Bill Ackman of Pershing Square Holdings. He has an investment position in Netflix and explains this very briefly in his latest message.

Revenues are growing, and everything continues to expand.

Artificial intelligence is expected to enhance work further by improving recommendation algorithms and content targeting, driving efficiency, and enabling new forms of interactive and personalized content.

By reinvesting free cash flows primarily in share buybacks, we estimate earnings should double by about 20% per annum over the next three to five years, making the P/E ratio of 19 ludicrous.

Looking at his position, he is looking at a current net price-to-earnings ratio of 19, with an expected earnings per share growth of 19%, representing 5% of his portfolio. The stock is a little low for its position, so 6 or 7% was spent on it.

However, unlike Ackman, there are many opinions on Wall Street. I asked Gemini to give me a summary. Wells Fargo lowered its target price from $80 to $57, citing declining engagement and an 8% drop in average daily viewership per Netflix subscriber.

He warns that expanding into live content and expensive sports to bridge the engagement gap will squeeze operating margins, and that Paramount's strategy and YouTube's dominant presence on television screens leave little room for expansion of duplicates.

So, the company will grow as a stable entity, but there is no room to repeat Netflix's history of high expansion. Revenue growth slowed, the slowest in nearly three years. So there are reductions in revenue forecasts, and they want to see what happens in 2027 first.

Discussing the senior management changes we have already touched upon, along with the weakening vision and slowing growth. But on average, we also have optimistic analysts. So if we look at the earnings per share estimates, they are, on average, very positive for growth there.

Some say it will reach four in 2028, others say five. Many analysts predict that.

This is high growth now because of the additional $2 billion, then it will stabilize, and then return to a rate of 15-20%. It is unlikely that the stock will trade at a price-to-earnings ratio of 10 if it continues to grow at these rates. So, this is your growth.

Let's move on to our intrinsic value calculation model. This is the free version. You can download it for free through my free course on value investing via the link in the description below.

Please also check out the other links to see what I do. A new book and research platform, and there are some very good buy deals. Take a look at it. Netflix, I have their data here.

Now, here is the free cash flow for each share you used. The dividend payout ratio is zero because it does not pay dividends, but it does a lot of buybacks. That's why we need to use the free cash flow per share.

Let's assume that business growth is 8%, then buybacks and profit margins add a few more percentage points , i.e., a growth rate of 15% for the next five years , then a price-to-earnings ratio of 20, so that the intrinsic value of an expected return of 10% is close to the present value.

Let's assume that business growth is 8%, then buybacks and profit margins add a few more percentage points, i.e., a growth rate of 15% for the next five years, then a price-to-earnings ratio of 20, so that the intrinsic value of an expected return of 10% is close to the present value.

Therefore, let's say in the basic scenario that Netflix is fairly priced to achieve a 10% return, which is not bad.

Based on Bill Ackman’s view, 15 to 20% growth over the next five years, i.e., 17% growth, then a price-to-earnings ratio of 12, and assuming the multiples expand with continued growth, then yes, Netflix is undervalued on this slightly more optimistic basis.

Regarding the safety margin, in the worst-case scenario, the growth rate slows to 12% and the price-to-earnings ratio falls to 15 in a negative environment. There are still many risks on the downside.

However, here I want to focus on the long-term investment trend. If you buy now, in the basic scenario, your money will more than double in 10 years. You could nearly quadruple your money in 10 years, or you could get only 50%, which is a low return in 10 years.

Thus, practically speaking, you cannot lose. It would be very difficult to lose money there.

Here is Netflix in front of us. The stock price is 10% below the estimated return, making Netflix a risk-reward investment at the moment. And then yes, we can discuss the evaluation.

I believe that the price-to-earnings ratios that were around 40 for this company are gone. There is simply too much competition. Therefore, it should be priced like a mature company.

Therefore, it is unlikely that Disney or Netflix's ratings will rise. This is the reality.

Therefore, it is unlikely that Disney or Netflix's ratings will rise . This is the reality. And perhaps, upon reflection, I may have been overly optimistic here. Let's set a 40 and a 20 for the worst-case scenario.

That doesn't change much, but I want to keep that margin of safety open.

Now let's put this into our value investment box. She was here in the past when I was a bit more reserved, I think. But now that I have conducted an in-depth analysis, we have seen that it offers a return of 10%.

So I pushed it to the 10% threshold in the square over this weekend.

We may update and refine this a bit, but it doesn't look bad in terms of risks and rewards. For reference only, this is my box on my research platform where I am a little more conservative .

As for Netflix, at 8 to 9% on a conservative basis, lower growth, and higher risk from a value investment perspective, it does not meet the criteria required to achieve a 10% diversified portfolio.

I will keep an eye on her. I'll leave it here and see what happens over time. I might add it here, but it needs to go down further for me to include it in my investment model or personal portfolio.

In short, regarding Netflix, I think it's much better than the market situation. The business exists and is operational. It is unlikely that you will lose money in the event of a recession.

In fact, it may perform better because people watch more television.

There are unknown things, which may be positive, and may also be negative. And you see this global expansion. They focus on that in a way that others might not. It doesn't look bad.

Therefore , I would classify it as a buy option now with positive risks and returns. You should compare it with the other options. Finally, consider how you feel about owning Netflix compared to the other options in your portfolio. Understand the risks and rewards.

Fairly priced to achieve a 10% return. It may fall further, or it may rise further. It appears to be in a state of overselling, and sentiment is very negative, but the business fundamentals are strong.

Therefore, I can only give it a positive rating.