Our Calculation Of Intrinsic Value: Netflix Inc

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 the world’s leading subscription streaming entertainment company, serving more than 300 million paid memberships across more than 190 countries. The company offers a broad library of original and licensed television series, films, documentaries, live programming, and mobile games, making it one of the most dominant media platforms globally.

What began as a DVD-by-mail business has evolved into a highly profitable global streaming platform with expanding revenue opportunities through advertising, live events, gaming, and premium content.

Netflix’s business model is driven by:

• Subscription revenue from its global streaming platform

• Growth of its advertising-supported membership tier

• Increasing operating leverage as revenue grows faster than content spending

• Expansion into live programming, sports, and interactive entertainment

Netflix’s competitive advantages include:

• Global scale with more than 300 million paid memberships

• Industry-leading brand recognition

• A deep library of original intellectual property

• Significant pricing power supported by high customer engagement

• Strong free cash flow generation and expanding operating margins

The business also benefits from long-term structural tailwinds including the continued shift from traditional television to streaming, growth in connected TV advertising, increasing global broadband penetration, and expanding demand for premium digital entertainment.

DCF Analysis

Inputs:

Discount Rate: 9%

Terminal Growth Rate: 3%

WACC: 9%

Forecasted Free Cash Flows (in billions USD)

Netflix has matured into a business capable of generating substantial and growing free cash flow. Following years of heavy investment in original programming, management now expects operating margins and cash generation to continue improving as content spending becomes more efficient.

2026: $12.5 → PV: $11.5B

2027: $13.8 → PV: $11.6B

2028: $15.2 → PV: $11.7B

2029: $16.7 → PV: $11.8B

2030: $18.4 → PV: $12.0B

Total Present Value of FCFs = ~$58.6B

Terminal Value Calculation

Using the perpetuity growth model with 2030 FCF of $18.4B:

TV = (18.4 × 1.03) ÷ (0.09 − 0.03)

Terminal Value ≈ $316B

Present Value of Terminal Value ≈ $205B

Enterprise Value

Enterprise Value = $58.6B + $205B

Enterprise Value ≈ $264B

Net Debt Position

Cash & Equivalents: ~$9.1B

Total Debt: ~$14.5B

Net Debt ≈ $5.4B

Equity Value & Per-Share Value

Equity Value = $264B − $5.4B

Equity Value ≈ $259B

Shares Outstanding: ~4.22B

Intrinsic Value per Share ≈ $61

Conclusion

DCF Value: ~$61

Current Price: ~$72

Margin of Safety: ~-15%

Netflix remains one of the highest-quality businesses in the global media industry. The company continues delivering strong revenue growth, expanding operating margins, and exceptional free cash flow while benefiting from its unmatched global subscriber base and increasing pricing power.

Management has successfully transitioned Netflix from a capital-intensive growth company into a highly profitable cash-generating platform. New initiatives including the advertising-supported tier, paid sharing, live programming, and gaming provide additional avenues for long-term growth beyond traditional subscriptions.

Unlike many media companies, Netflix also operates with significant operating leverage, allowing a growing portion of incremental revenue to flow through to earnings and free cash flow.

While the business continues to strengthen, the current share price appears to reflect much of that optimism. A conservative discounted cash flow analysis suggests the stock is trading modestly above intrinsic value, implying investors are already pricing in continued subscriber growth, successful advertising expansion, and sustained margin improvement.

For long-term investors, Netflix remains an outstanding business. However, from a valuation perspective, the current market price offers only a limited margin of safety under conservative assumptions.