Netflix Equity Research

01 / The question

Is Netflix's margin step permanent, and is it in the price?

The pitch was written for an investment committee on 14 May 2026, when Netflix traded at $87.69, about 18% below its April 2026 peak of $107. Its argument is that Netflix has moved from a high-growth disruptor to a high-margin “digital utility”, and that standard analyst models, which the deck puts at about $75, assume growth decays and margins stall. The recommendation is BUY with a $115 target.

02 / The thesis

Three pillars: ads, margin, and a valuation gap.

The regional split supports the growth story: UCAN carries pricing and ads, and APAC is the volume opportunity. The deck also points to live events (WWE Raw, NFL) as a source of premium advertiser CPMs, and to cloud gaming as an unpriced way to reduce churn among younger viewers.

03 / The assumptions

Four assumptions carry the whole gap.

The deck bridges $75 to $115 with a side-by-side of four inputs.

Two of the four inputs, the discount rate and terminal growth, act together in the terminal value. The Gordon growth formula capitalizes final-year cash flow at 1 ÷ (WACC − g). At the pitch's 8.2% and 3.0% that factor is about 19.2, and at the analyst's 8.9% and 2.0% it is about 14.5, so those two assumptions alone lift the terminal value by about a third before any change to revenue or margin. That is my arithmetic on the formula, not a figure from the deck.

04 / The DCF

Nearly three-quarters of the value is terminal value.

The model forecasts revenue over ten years, from $45.18B in 2025 to $106.70B in 2035, then discounts free cash flow to the firm and adds a Gordon growth terminal value.

The bridge adds up: $128.4B plus $331.6B is $460.0B, and $34.0B of cash less $10.0B of debt gives $484.0B of equity, or about $114.96 a share. The terminal value is 72% of the enterprise value, which is normal for a growth company but means the result is most sensitive to the terminal-year assumptions in section 3. The deck states an implied EV/EBITDA of about 21.5x.

05 / The multiples cross-check

Margins like Big Tech, a multiple below it.

The argument is that Netflix earns an Apple-like margin (30.2% against 33.2%) but trades at 18.5x against 21x to 23.5x for the large technology names, and far above legacy media at 9.5x to 11.2x. The deck says applying 18.5x to 2027 EBITDA cross-checks to the $115 target. Appendix B, a peer table for FY2024, says Netflix is the only company combining double-digit growth, a 25%-plus EBIT margin and a ROIC above 20%, which the deck says justifies part but not all of its multiple premium.

06 / Catalysts and risks

Upside events, and a downgrade safety net.

The two risks that bear on the valuation are live rights inflation, which would pressure the capped content spend the margin story depends on, and UCAN saturation, which is the analyst thesis itself.

07 / Reading the deck with care

Where the numbers do not line up.

I checked the deck's arithmetic against its own tables. Most of it holds, and some does not. These points matter because the target depends on them.

08 / The supplemental workbook

A second file: the workbook behind the peer data.

The pitch cites the FVA Super Simple Template as a source. This Excel workbook is that template set up for Netflix. It holds ten years of Netflix and peer results from Capital IQ, a WACC build and the market-approach mechanics, so it is where the deck's peer and cost-of-capital inputs can be checked. It is a separate model from the pitch's DCF: its own DCF tabs are blank, so it does not reproduce the $115 target.

The template is built for private-company valuations: it separates fixed from variable costs, tests three ways to forecast capex, and ends in adjustments for control and marketability. That makes it a useful frame for looking at Netflix, with the caveat, set out in section 12, that some of its tabs were not filled in.

09 / Financial statement analysis

Revenue grew almost six times, and operating profit grew thirty-four times.

The workbook holds ten years of Netflix results (FY2015–FY2024) in its peer-data tab, pulled from Capital IQ. Read as a financial statement analysis, the record shows how much of Netflix's story is operating leverage.

Three things stand out. First, gross margin rose 13.8 points over the period but EBIT margin rose 22.2, so operating expenses grew far more slowly than sales. That is where the 34-fold rise in EBIT comes from. Second, FY2022 is the one stumble: growth fell to 6.5%, EBIT dipped 9% and ROIC fell from 16.1% to 12.5%, and FY2023 grew only 6.7%. Third, the recovery was not just growth returning. In FY2024 revenue grew 15.6% while EBIT margin climbed 6.1 points to 26.7%, and ROIC reached 21.7%. The pitch's FY2025 EBITDA margin of 30.2% continues this series, and its statement that ROIC has crossed 20% matches the workbook's 21.7% for FY2024.

The template's own analysis goes further than the P&L. Its Historicals tab is laid out to compute growth and margins, the balance sheet split into working capital, debt, cash and non-operating assets, implied capex, and ratios such as fixed-asset turnover, interest coverage, the cash conversion cycle and return on capital.

The peers make the point sharper. Comcast has by far the highest gross margin, 70%, but keeps only 27% of its gross profit as operating profit. Netflix has a gross margin below Comcast's and turns 58% of it into EBIT, more than any peer with positive earnings. Roku and Bilibili are left out of the table because their EBIT was negative. The last column is a warning about comparability, and it matters for the next section: Netflix's EBITDA is only 3% above its EBIT, because Netflix reports content amortization inside its cost of revenues, so it is not added back. For Warner Bros. Discovery and iQIYI, EBITDA is 12 and 5 times EBIT.

10 / Supplemental valuation

Netflix trades at 2.4 times the multiple of its peers.

The market approach in the workbook values a company by applying a peer EV/EBITDA multiple to its normalized EBITDA. The peer set is nine listed media and streaming companies as of 31 December 2025, and it includes Netflix itself.

The median row is computed here from the eight peers, without Netflix. The workbook's own medians include Netflix, which gives 12.5x. Either way, Netflix's 29.7x is about 2.4 times the peer median.

The pitch's cross-check uses a different peer set and a forward multiple: Netflix at 18.5x NTM EBITDA against Disney at 11.2x and WBD at 9.5x, with Amazon and Apple at 23.5x and 21.0x. The workbook's 29.7x is on last-twelve-month EBITDA at 31 December 2025, so the two figures are not directly comparable, but both put Netflix well above legacy media.

What explains the premium is profit, not growth. Netflix's three-year sales growth of 9.5% is close to the peer median of 8.5%, and the highest growth rate in the set, 47.8% at Warner Bros. Discovery, is a merger effect. But its EBIT margin of 29.5% is more than five times the peer median of 5.5%. The market is paying for margin and its durability. It is also worth noting that the two highest multiples, Roku at 57.0x and Spotify at 46.5x, sit on thin earnings: Roku's FY2024 EBITDA margin was 2.0%. A multiple on a near-zero denominator says little.

Another view is market capitalization against sales. On FY2024 revenue, Netflix's $397bn is 10.2 times revenue against 2.2 times for Disney, so the market values Netflix at about twice Disney with less than half of its sales. (This mixes a December 2025 market cap with FY2024 revenue, because most FY2025 figures in the file are blank.)

The workbook then turns a chosen multiple into equity value: multiple times normalized EBITDA gives enterprise value, adjusted for net debt and net non-operating assets. The last step is a switch. If a controlling stake is being valued, it adds a 34.4% control premium, the median of nine years of Mergerstat data from 24.8% to 43.5%. If not, it applies a 16.35% discount for lack of marketability, the median of six restricted-stock studies that range from 13.0% to 32.8%. For a listed company such as Netflix, the market price already reflects a marketable minority stake, so the control-premium branch is the one that would matter, in an acquisition.

11 / Cost of capital

The discount rate choice outweighs the sensitivity grid.

The workbook's DCF discounts five years of free cash flow to the firm (EBITDA less tax, capex and working capital) at a WACC, with mid-year timing and a Gordon-growth terminal value at 2% growth. The pitch's DCF runs ten years with 3% terminal growth. The workbook's sensitivity grid moves the discount rate by one point either way and terminal growth by half a point. The WACC itself is built as follows.

Two inputs here stand out. The size premium is the one for the smallest companies, with market caps below $230m, and Netflix's is $397bn, which sits in Kroll's largest decile, where the premium is slightly negative at -0.28%. And the risk-free rate is a Singapore yield, while Netflix's cash flows and the valuation are in US dollars. As a check on how much this matters, here is my own arithmetic on the workbook's numbers, changing only those inputs:

The gap between 11.6% and 8.9% is far wider than the one-point range in the sensitivity grid. It also compounds in the terminal value: at a 2% growth rate, each dollar of terminal-year cash flow is capitalized at about 10.5 times with the workbook's WACC and about 14.6 times with 8.9%. For a business valued mainly on cash flows years out, the discount rate is the assumption to defend first.

The pitch's own WACC is 8.2%, built from a 4.2% risk-free rate, a 4.5% equity risk premium, a beta of 0.95 and a 92/8 equity and debt mix, with no size premium. That is close to the alternative case above and far from the workbook's 11.56%, so the workbook's WACC is not the basis of the $115 target.

12 / Reading the workbook with care

What the saved workbook contains, and what it does not.

The workbook is a working template, and the checks below describe the file as saved. They matter because they decide how much weight its outputs can carry.