Our Calculation Of Intrinsic Value: Netflix

Each week we run a DCF (Discounted Cash Flow) model on a company from our watchlist. This week’s pick: Netflix, Inc. (NFLX).

Profile

Netflix is one of the world’s largest entertainment companies, operating a global streaming platform offering television series, films, documentaries, live programming, and games.

The company has built a massive global subscriber base and one of the most recognizable entertainment brands in the world. Revenue is generated primarily through paid streaming subscriptions, with advertising becoming an increasingly important part of the business.

Netflix’s business model is driven by:

• Global streaming subscriptions

• Advertising-supported memberships

• Original films and television programming

• Licensed entertainment content

• Live programming and gaming initiatives

Netflix’s competitive advantages include:

• Massive global subscriber and viewer base

• One of the world’s strongest streaming brands

• Large and diversified content library

• Significant scale advantages in content spending

• Growing advertising business

• Strong and rapidly improving free cash flow generation

The business also benefits from long-term structural tailwinds including the continued shift from traditional television to streaming, international growth, increased monetization through advertising, pricing power, and expansion into live entertainment and other forms of digital content.

DCF Analysis

Inputs:

Discount Rate: 9%

Terminal Growth Rate: 3%

WACC: 9%

Forecasted Free Cash Flows (in billions USD)

2027: $12.5 → PV: $11.5B

2028: $14.0 → PV: $11.8B

2029: $15.5 → PV: $12.0B

2030: $17.0 → PV: $12.0B

2031: $18.5 → PV: $12.0B

Total Present Value of FCFs = ~$59.3B

Terminal Value Calculation

Using the perpetuity growth model with 2031 FCF of $18.5B:

TV = (18.5 × 1.03) ÷ (0.09 − 0.03)

Terminal Value ≈ $317.6B

Present Value of Terminal Value ≈ $206.4B

Enterprise Value

Enterprise Value = $59.3B + $206.4B

Enterprise Value ≈ $265.7B

Net Debt Position

Cash & Equivalents: ~$9.1B

Total Debt: ~$14.5B

Net Debt ≈ $5.4B

Equity Value & Per-Share Value

Equity Value = $265.7B − $5.4B

Equity Value ≈ $260.3B

Shares Outstanding: ~4.22B

Intrinsic Value per Share ≈ $62

Conclusion

DCF Value: ~$62

Current Price: ~$76

Margin of Safety: ~-19%

At approximately $76 per share, Netflix trades above our conservative DCF estimate of approximately $62 per share. Based on these assumptions, the current valuation appears to price in continued strong growth in revenue, margins, and free cash flow.