Netflix: Streaming’s Dominant Force with More Growth Ahead

Netflix is one of the world’s leading entertainment companies and has fundamentally changed how people watch TV and movies. What started as a subscription-based streaming service has grown into a global platform offering original series, films, live events, and interactive experiences, while also introducing advertising as a new monetization layer. As Netflix improves profitability, generates strong free cash flow, and adds additional growth drivers on top of its core business, it is entering a more mature phase of its evolution. The question remains: Does this combination of scale, content, and improving financial performance make Netflix a good long-term investment?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Netflix at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Netflix, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Netflix is a global entertainment company operating a subscription-based streaming platform that offers TV series, films, games, and live programming across a wide range of genres and languages. The company operates as a single business segment, with the vast majority of revenue generated from monthly membership fees paid by its subscribers. Netflix’s service is designed to be highly flexible and user-friendly. Members can watch content anytime and anywhere, pause and resume seamlessly across devices, and change subscription plans at will. The platform relies heavily on personalization, using viewing data to curate recommendations tailored to individual preferences, which drives engagement, viewing time, and long-term retention. The company’s strategy centers on global scale. Netflix serves more than 300 million paid members across over 190 countries, allowing it to amortize content investments over a massive subscriber base. A significant portion of Netflix’s annual spend is directed toward producing and acquiring content, with a growing emphasis on original programming. These originals span blockbuster series, films, documentaries, and regional productions, reducing dependence on third-party licensors while strengthening customer loyalty. Netflix continues to refine its product experience through ongoing improvements to its user interface and discovery features, helping members find content they are more likely to enjoy. The introduction of multiple pricing tiers, including an ad-supported plan, allows Netflix to address different consumer budgets and expand its addressable market while adding a complementary revenue stream. Netflix’s moat is built on a combination of scale, brand, content, data, and global distribution. At the core of its advantage is scale. With hundreds of millions of subscribers worldwide, Netflix can invest billions of dollars annually in content while spreading those costs across a global audience. This scale makes it difficult for smaller competitors to match Netflix’s breadth, consistency, and production cadence without sustained losses. Netflix also benefits from a powerful brand moat. The brand is deeply embedded in popular culture and is often viewed as the default streaming service. This cultural relevance strengthens top-of-mind awareness, reduces customer acquisition friction, and reinforces consumer habits around the platform. Original content is another key pillar of Netflix’s moat. By owning a large and growing share of its programming, Netflix controls distribution, avoids licensing volatility, and builds long-lived intellectual property. Its willingness to release full seasons at once and experiment with storytelling formats has made it an attractive partner for creators, helping Netflix secure top creative talent and differentiated content. The company’s global distribution capability further strengthens its competitive position. Netflix has demonstrated an ability to produce local-language content that resonates regionally while also scaling into global hits. Successes such as Squid Game and Money Heist highlight how Netflix can turn regional productions into worldwide phenomena, a capability few competitors can consistently replicate. Finally, Netflix’s data-driven personalization engine creates a reinforcing loop. Viewing data improves recommendations, better recommendations increase engagement, higher engagement improves retention, and scale feeds back into stronger content economics. This makes the platform increasingly difficult to replace, a point management has emphasized by describing Netflix as a unique product rather than a commoditized service.

Management

Ted Sarandos and Greg Peters serve as Co CEOs of Netflix, bringing complementary creative and operational leadership to the company. Ted Sarandos joined Netflix in 2000 and has been a central figure in its transformation from a DVD rental business into a global streaming platform. He assumed the role of Co CEO in 2020 alongside co founder Reed Hastings and continues to serve as Netflix’s Chief Content Officer. Ted Sarandos played a decisive role in Netflix’s strategic move into original programming, beginning with the launch of its first original series in 2013. Under his leadership, Netflix has built a large and diverse portfolio of original content across series, films, and documentaries, including globally successful and critically acclaimed titles such as Stranger Things, Squid Game, La Casa de Papel, The Witcher, The Irishman, and Roma. His creator focused leadership style has helped attract top tier talent by offering greater creative freedom and faster decision making than traditional studios, reinforcing Netflix’s content driven competitive moat. Ted Sarandos has been recognized for his influence on the entertainment industry through his inclusion on Time magazine’s list of the 100 most influential people. Internally, he is well regarded by employees, with an 81 out of 100 rating on Comparably, placing him among the top executives at similarly sized companies. Greg Peters joined Netflix in 2008 and was appointed Co CEO in January 2023 after serving as Chief Product Officer and later COO. He has been instrumental in building the technological, operational, and partnership infrastructure that enables Netflix to operate at global scale. Greg Peters has overseen key relationships with consumer electronics manufacturers, internet service providers, and distribution partners, ensuring seamless access to Netflix across devices and geographies. He played a central role in launching Netflix’s ad supported subscription tier, expanding the company’s addressable market while diversifying its revenue model. Greg Peters has also been actively involved in scaling Netflix’s gaming initiatives, which management views as a long term engagement and intellectual property extension opportunity. His background in engineering, product development, and operations has made him a key driver of execution as Netflix balances growth, profitability, and global complexity. In addition to his role at Netflix, Greg Peters serves on the boards of 2U Inc. and DoorDash. Former CEO and co founder Reed Hastings remains involved with Netflix as Executive Chairman of the board, where he continues to provide strategic guidance and long term perspective. Reed Hastings played a foundational role in shaping Netflix’s culture, particularly its emphasis on high talent density, accountability, and decentralized decision making. Together, the leadership of Ted Sarandos, Greg Peters, and Reed Hastings provides Netflix with a management structure that balances creative ambition with operational discipline, positioning the company well for its next phase of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Netflix’s ROIC has increased almost every year over the past decade and reaching a new high in 2025 reflects a fundamental change in how the business operates rather than a short term fluctuation. In Netflix’s early streaming years, returns were structurally low because the company was investing aggressively in content while its subscriber base was still relatively small. Capital employed grew much faster than profits as Netflix prioritized global expansion and scale over near term efficiency. As the platform matured, scale began to work in Netflix’s favor. Today, content investments can be spread across more than 300 million paid members globally. A film or series that costs the same to produce can now generate revenue across dozens of markets simultaneously, significantly improving the economics of each dollar invested. This global scale is one of the most important reasons ROIC has risen so steadily. At the same time, Netflix has shifted its content mix toward owned original programming. By producing more of its own content rather than relying on licensed titles, Netflix retains global rights and long term control over distribution. Owned content can be monetized for many years and reused across markets without requiring additional capital, which steadily lifts ROIC as the content library deepens. Operational discipline has also improved meaningfully. Netflix now manages the business with clear operating margin and cash flow targets, focusing not just on growing subscribers but on earning attractive returns on content spend. Price increases, better monetization of existing users, and the introduction of an ad supported tier have increased operating profits without a proportional rise in capital employed. This has further pushed ROIC higher. The record ROIC level in 2025 reflects the combination of these forces. Netflix has reached a point where incremental revenue growth and profit growth outpace the need for incremental investment. Importantly, this has happened while the company continues to invest heavily in content, technology, and new initiatives. The business is no longer consuming capital to grow but generating returns from an already built global platform. Going forward, ROIC is unlikely to increase in a perfectly straight line, but the overall level should remain structurally higher than in the past. Netflix today benefits from scale, pricing power, a strong brand, and multiple monetization levers, all of which support sustained high returns on capital. While competition and rising content costs could limit further upside, the long term trend suggests Netflix has transitioned from a capital intensive growth story into a mature, high return platform business.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Netflix’s equity has grown almost every year over the past decade and reaching its highest level in 2025 is mainly the result of the business becoming consistently profitable and keeping a large share of those profits inside the company. In Netflix’s earlier years, equity growth was uneven because the company was spending aggressively to build its streaming platform and global content library. Profits were thin or negative at times, so there was less to add to equity. Even then, equity generally trended upward because Netflix was expanding its business faster than it was destroying value. As the company scaled, this changed. Subscriber growth across the world allowed Netflix to generate much higher and more stable profits. When a company earns profits and does not pay most of them out as dividends, those profits stay on the balance sheet and increase equity. Netflix does not pay a dividend, so almost all earnings are reinvested into the business or retained, which directly lifts equity over time. Another important factor is that Netflix’s content investments are now producing better results. The company still spends heavily on content, but that spending increasingly leads to strong cash flow and earnings rather than losses. As a result, equity grows even while Netflix continues to invest, instead of being consumed by those investments. The dip in 2023 stands out, but it does not change the long-term picture. That decline was mainly driven by temporary factors such as slower subscriber growth, higher costs, and some balance sheet adjustments rather than a breakdown of the business model. The rebound in 2024 and 2025 shows that Netflix quickly returned to adding value once growth and profitability improved again. Looking forward, equity is likely to keep growing as long as Netflix remains profitable and continues to retain earnings. Growth may not be perfectly smooth every year, and periods of slower growth or temporary declines are possible, especially if competition or content costs rise. But given Netflix’s scale, strong brand, and ability to generate cash from its existing platform, the long-term direction of equity growth is more likely to be upward than downward, even if the pace varies from year to year.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. In Netflix’s earlier years, free cash flow was deeply negative because the company was building a global streaming platform almost from scratch. It was paying for content upfront, while the benefits from that content came in slowly over many years, which meant a lot of cash left the business long before it showed up in results. This was intentional. Netflix was prioritizing scale, global reach, and a deep content library over short term cash generation. As the business matured, that dynamic flipped. Netflix reached a size where it no longer needed to increase content spending at the same pace as revenue. Today, much of its content spend is supporting an already massive subscriber base rather than chasing growth at any cost. As a result, operating profits have grown faster than cash spending, which is why free cash flow turned positive and has continued to rise. The record free cash flow and margins in 2025 reflect this shift very clearly. Revenue grew at a healthy pace, operating profits grew even faster, and cash generation followed. Netflix produced roughly $10 billion in cash from operations and about $9,5 billion in free cash flow for the year, helped by strong margins and disciplined spending. Their guidance for 2026 suggests further growth in free cash flow to around $11 billion, assuming content spending remains well controlled. What matters most is not just that free cash flow is positive, but why. Netflix is now generating cash because its existing platform is highly profitable, not because it is cutting back on investment. The company continues to invest heavily in content, technology, advertising, and new initiatives, but it does so within a framework that prioritizes returns. Management has been explicit about allocating capital to areas where it sees clear evidence that spending leads to better member experiences and stronger financial results. As for what Netflix does with its free cash flow, the priorities have become clearer over time. A portion is reinvested back into the business, mainly into content, product improvements, advertising capabilities, and international growth. Beyond that, Netflix has increasingly focused on returning capital to shareholders, primarily through share repurchases rather than dividends. Looking ahead, free cash flow will not grow perfectly every year. Content costs can fluctuate, competition remains intense, and new projects could temporarily absorb more cash. But Netflix today is fundamentally different from the cash consuming company it was a decade ago. With its scale, improving margins, and more disciplined spending model, it is reasonable to expect free cash flow to remain solid and structurally positive, even if growth rates vary from year to year. The free cash flow yield suggests that the shares are currently trading at a premium valuation, even though the yield is close to its highest level ever. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to assess whether a business has manageable debt that can reasonably be repaid within three years. Based on my calculation, Netflix has 1,26 years of earnings in debt, which is well below my three-year threshold. As a result, debt is not a concern when investing in Netflix. Given the company’s improving profitability and growing free cash flow, I do not expect debt to become an issue in the future.

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Risks

Competition is a risk for Netflix because the entertainment landscape is becoming broader, more fragmented, and more intense every year. Netflix does not only compete with other streaming services, but with virtually all activities that consumers choose during their leisure time. Viewers have a finite amount of time and attention, and Netflix must constantly earn a place in that limited window. Within streaming itself, competition has increased materially. Traditional media companies such as Disney, Warner Bros. Discovery, and NBCUniversal operate platforms like Disney+, and Peacock, each backed by large content libraries and well-known franchises. Large technology companies further intensify competition. Amazon uses Prime Video as part of a broader ecosystem tied to e-commerce and Prime subscriptions. Apple can fund Apple TV+ through hardware and services profits. Both companies have deep financial resources and are increasingly aggressive in securing premium content, sports rights, and awards recognition. This makes it harder and more expensive for Netflix to consistently stand out. A key structural risk is the low switching cost in streaming. Unlike traditional cable, streaming services can be canceled and reactivated at any time. Subscribers often rotate between platforms based on which service currently offers the most attractive content, promotions, or pricing. This puts constant pressure on Netflix to deliver fresh and compelling content to retain subscribers and limits long-term pricing power. Beyond streaming, competition for attention has expanded significantly. The definition of television itself is changing. Platforms like YouTube now offer long-form scripted content, live sports, major cultural events such as the Oscars, and even original productions from traditional broadcasters. Social media platforms, video games, and user-generated content compete directly with Netflix for time spent, particularly among younger audiences. As Warren Buffett has noted, people still only have 24 hours in a day, making attention a zero-sum game.

Content acquisition and production costs are a risk for Netflix because the company’s entire value proposition depends on offering a steady flow of high-quality content that keeps subscribers engaged and willing to pay. In an industry where viewers can cancel and re-subscribe easily, Netflix must continuously refresh its library, which requires ongoing and often substantial spending. Competition has fundamentally changed the economics of content. Studios, producers, and creative talent now have far more distribution options than in the past, including launching content on their own streaming platforms. As a result, content owners have greater bargaining power and can demand higher licensing fees or withhold their most valuable titles entirely. Major studios such as Disney, and NBCUniversal increasingly prioritize their own direct-to-consumer services, making premium third-party content scarcer and more expensive for Netflix to license. This shift has pushed Netflix to rely more heavily on original productions. While owning content strengthens long-term control and reduces dependence on licensors, it also introduces meaningful financial risk. Producing high-quality films and series requires large upfront investments, often years before their success can be evaluated. Not every original becomes a global hit, and projects that fail to resonate with audiences still consume significant capital. Unlike licensed content, where costs are more predictable, original production carries greater uncertainty around returns. At the same time, competitors are investing aggressively in exclusive content, escalating a form of spending competition across the industry. Large media and technology companies can afford to outspend Netflix in certain cases, either to protect existing franchises or to support broader ecosystems. This raises the cost of attracting top creative talent, securing premium scripts, and producing blockbuster-level content, all of which puts pressure on Netflix’s margins if spending is not carefully managed. Licensed content remains important as well. Even as originals grow in importance, familiar third-party shows and films continue to play a meaningful role in keeping subscribers engaged. Balancing licensed and owned content at an attractive cost has become more difficult as licensors demand higher fees or restrict availability, increasing the risk of higher overall content costs.

Cybersecurity is a risk for Netflix because the company’s entire business depends on the continuous, secure, and reliable operation of complex technology systems. Any meaningful disruption, breach, or failure across these systems could directly affect service availability, customer trust, and financial performance. Netflix operates at massive global scale, serving hundreds of millions of members simultaneously across devices, networks, and geographies. This makes its systems an attractive target for cyber-attacks such as malware, ransomware, denial-of-service attacks, data theft, and unauthorized access. A successful attack could lead to service outages, degraded streaming quality, or the exposure of sensitive member or corporate data. Even temporary disruptions could damage Netflix’s reputation and increase subscriber churn in an industry where switching services is easy. A major part of this risk comes from Netflix’s reliance on third-party infrastructure. The company runs the vast majority of its computing operations on Amazon Web Services and also depends on cloud providers, payment processors, marketing platforms, and content delivery networks. While this setup enables scale and efficiency, it also creates dependency risk. Any outage, cyber incident, or commercial dispute involving these third parties could disrupt Netflix’s operations, and Netflix cannot easily or quickly migrate away from AWS if problems arise. Netflix also handles large volumes of personal data, including user preferences, payment information, and viewing behavior. A breach involving this data could expose the company to regulatory penalties, litigation, and reputational harm, especially given increasingly strict data protection rules globally. In addition, Netflix stores valuable intellectual property such as unreleased shows and films. Unauthorized leaks of content can reduce its commercial value, weaken exclusivity, and strain relationships with creators and partners. The nature of cybersecurity threats adds another layer of risk. Attack methods evolve constantly, and new vulnerabilities can emerge from software updates, system upgrades, open-source components, or even human error. Netflix also acknowledges that generative AI may intensify cybersecurity risks by making attacks more sophisticated and easier to execute.

Reasons to invest

A strong product portfolio is a reason to invest in Netflix because the company consistently delivers a broad, deep, and globally relevant slate of content that drives engagement, retention, and long-term revenue growth. Netflix’s portfolio is not built around a small number of franchises, but around a steady pipeline of returning hits, new originals, films, and licensed titles that appeal to a wide range of tastes, age groups, and cultures. At the core of this strength is the depth of Netflix’s returning series. Established global franchises provide predictability and continuity. These returning seasons matter because audiences already know the shows, anticipate new episodes, and often return to the platform specifically for them. This anticipation creates spikes in engagement and reduces churn, especially around major releases. A portfolio with many long-running and repeatable hits lowers Netflix’s reliance on any single title succeeding. Alongside returning series, Netflix continues to refresh its offering with new originals across regions and genres. New projects from proven creators such as the Duffer Brothers, along with high-profile adaptations and original series from the US, Europe, Asia, and Latin America, keep the platform feeling new and relevant. Importantly, Netflix does not rely solely on English-language content. Korean dramas, Spanish and French series, Colombian adaptations, Japanese productions, and Indian originals allow Netflix to connect deeply with local audiences while still producing global breakout hits. This global breadth is difficult for competitors to replicate at scale. Licensed content remains an important complement to originals. Netflix has been expanding selective licensing partnerships with major studios such as Universal, Sony Pictures Entertainment, and Paramount. These deals allow Netflix to offer familiar and popular titles alongside its originals, improving the overall value of the service. A balanced mix of owned and licensed content helps Netflix appeal to both loyal long-term subscribers and more casual viewers. What ultimately ties this portfolio together is engagement quality, not just volume. Netflix has emphasized that it increasingly focuses on how valuable viewing time is, rather than just how many hours are watched. In 2025, Netflix reached an all-time high on its internal quality engagement metrics, while retention and customer satisfaction also hit record levels. This suggests that the content portfolio is not only large, but increasingly effective at delivering perceived value to members. A particularly powerful element of Netflix’s portfolio is its ability to create fandom. Certain titles generate deep emotional connections that extend far beyond viewing hours. Shows like Stranger Things, Bridgerton, and K-pop related content create passionate fan bases that drive word-of-mouth, repeat engagement, merchandise sales, live experiences, and cultural relevance. These fandom-driven titles act as long-term brand assets that strengthen Netflix’s ecosystem and reduce churn over time.

Expansion into more content categories is a reason to invest in Netflix because it increases engagement, improves retention, and creates new ways to attract and monetize members without relying solely on traditional series and films. Historically, Netflix was primarily a movies and TV series platform. Today, it is evolving into a broader entertainment service that includes live events, sports-adjacent programming, video podcasts, and games. This matters because different content formats serve different user needs and viewing moments. A live sports event, a podcast, a casual game, and a prestige drama all compete for different slices of a member’s time, allowing Netflix to capture more total engagement across the day. Live programming is a good example. While live events still represent a small share of total viewing hours, they generate disproportionate impact. High-profile events such as major boxing matches, NFL Christmas Day games, and upcoming international broadcasts like the World Baseball Classic in Japan drive conversation, social buzz, and sign-ups. These events create urgency and cultural relevance in a way on-demand content cannot, helping Netflix attract new members and reinforce the value of the service. Importantly, Netflix is scaling this category carefully, expanding live operations centers in the UK and Asia while keeping live content a relatively small part of overall spending. Video podcasts add another layer of engagement. Netflix is positioning video podcasts as a modern version of talk shows, offering hundreds of niche formats rather than relying on a few flagship programs. This broad offering encourages frequent, habitual usage and appeals to audiences who may not always sit down to watch a full episode or movie. Early partnerships with creators and platforms such as Spotify, The Ringer, iHeartMedia, and Barstool, along with original podcasts, show how Netflix can leverage existing fan bases while developing new ones. Gaming represents a longer-term opportunity. Netflix’s cloud-first gaming strategy lowers barriers to entry by allowing members to play directly on TVs and mobile devices without consoles. Early engagement with party games and recognizable titles suggests that games can extend time spent on the platform and deepen connections to existing franchises. Over time, games can reinforce storytelling, strengthen retention, and potentially open additional monetization paths, all while building on Netflix’s existing global reach. Expanding into more content categories also reduces business risk. Netflix becomes less dependent on the success of any single show or genre and more resilient to shifts in consumer tastes. A broader entertainment mix allows Netflix to adapt as viewing habits change, whether audiences favor short-form content, interactive experiences, or live programming.

Advertising is a reason to invest in Netflix because it adds a fast-growing, high-margin revenue stream on top of an already scaled global platform, while also expanding the company’s addressable market and improving monetization over time. Netflix’s advertising business is still in its early stages, yet it is already scaling rapidly. Ad revenue grew roughly 2,5 times in 2025, and management expects advertising revenue to roughly double again in 2026 to around $3 billion. Despite this growth, Netflix remains only about 7% penetrated relative to the overall opportunity when looking at global consumer and advertising spend. This highlights how much room there is for further expansion. One of the key attractions of advertising is that it complements Netflix’s core subscription model rather than replacing it. The ad-supported tier allows Netflix to reach more price-sensitive consumers who might otherwise churn or never subscribe at all. Importantly, engagement among ad-tier members is similar to that of standard subscribers, showing that the lower price point does not reduce usage or weaken the product experience. This makes advertising a powerful tool for both subscriber growth and retention. From a monetization perspective, Netflix is still under-earning on its ad tier compared to its standard plans. The average revenue per member for ad-supported users remains lower, but that gap is steadily narrowing. This is actually a positive signal for investors, as it represents upside rather than saturation. As Netflix improves its advertising capabilities, it can close this gap over time by increasing ad load efficiency, improving targeting, and raising fill rates, all without materially hurting user experience. A major driver behind this improvement is Netflix’s investment in its own advertising technology stack. By bringing ad tech in-house, Netflix has made it easier for advertisers to buy inventory, improved measurement and reporting, and expanded demand sources. Advertisers have responded positively, which is reflected in better sales performance and higher monetization of available ad inventory. Now that Netflix has reached meaningful scale in ad-supported markets, management’s focus has shifted from building reach to extracting more value from each impression. Netflix also benefits from a unique data advantage. The company has deep insight into viewing behavior across genres, formats, and regions. As more first-party data becomes available to advertisers in a privacy-safe way, campaigns can be planned and optimized more effectively. Netflix is also rolling out new ad formats, including interactive and modular video ads that adapt creative elements to viewer behavior. Early tests have shown encouraging results, and broader rollout is expected to further improve advertiser outcomes.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 2,53, which is from the year 2025. I have selected a projected future EPS growth rate of 15%. (Finbox expects EPS to grow by 18,6% in the next five years, but 15% is the highest number I use.) Additionally, I have chosen a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on the fact that Netflix has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $75,90. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Netflix at a price of $37,95 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is called the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company is essentially its return on investment. The minimum annual return should be at least 10%. I calculate it as follows: The operating cash flow last year was 10.149, and the capital expenditures were 688. I attempted to analyze their annual report to determine the percentage of capital expenditures allocated for maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 482 in our calculations. The tax provision was 1.741. We have 4.237 outstanding shares. Hence, the calculation will be as follows: (10.149 – 482 +1.741) / 4.237 x 10 = $26,92 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Netflix's free cash flow per share at $2,23 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $35,20.

Conclusion

 believe that Netflix is an intriguing company with strong management that has built a competitive moat through a combination of scale, brand, content, data, and global distribution. Over time, this has translated into steadily improving economics, with ROIC increasing in most years and reaching its highest level ever in 2025, alongside free cash flow and free cash flow margins also hitting record levels that year. Competition remains a risk because Netflix operates in an increasingly crowded and fragmented entertainment market where consumers have limited time and can switch services easily, forcing the company to continuously compete against well-funded media and technology players across streaming, social media, gaming, and video platforms, which pressures retention, pricing power, and content spending. Content acquisition and production costs are another risk, as maintaining subscriber growth and engagement requires ongoing investment in high-quality content at a time when studios and creators have greater bargaining power, driving higher licensing costs and increasing reliance on expensive originals with uncertain returns. Cybersecurity is also a risk because Netflix’s global platform depends on complex and interconnected systems that are attractive targets for attacks or disruptions, and any breach or outage could hurt service reliability, expose sensitive data or intellectual property, and damage customer trust in a low switching cost industry. On the positive side, Netflix’s strong product portfolio supports the investment case through a steady pipeline of returning global hits, new originals, and licensed content across regions and genres, which drives high engagement, strong retention, and durable revenue growth while reducing reliance on any single title. The expansion into additional content categories such as live events, video podcasts, and games further strengthens the platform by capturing more of a member’s time across different use cases and creating new growth and monetization opportunities without depending solely on traditional series and films. Advertising adds another attractive dimension by introducing a rapidly growing, high-margin revenue stream that expands the addressable market and improves monetization of the existing platform, with clear upside as ad penetration increases and revenue per ad-supported user continues to rise. Overall, I believe there are many things to like about Netflix, and buying shares at $56, which would give me a 25% discount to my intrinsic value based on a margin of safety approach, would represent a good long-term investment.

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