Netflix Inc.: Our Calculation Of Intrinsic Value
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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Netflix Inc (NFLX).
Profile
Netflix is one of the world’s leading streaming entertainment services with over 260 million paid memberships across 190 countries. The company produces and licenses a broad range of content—including series, documentaries, and feature films—across numerous genres and languages. Known for its data-driven content strategy and global scale, Netflix continues to invest heavily in original programming to retain subscribers and expand its share in the highly competitive digital entertainment space. It’s also exploring adjacent revenue streams like advertising and gaming to diversify beyond subscriptions.
DCF Analysis
Inputs
- Discount Rate: 11%
- Terminal Growth Rate: 4%
- WACC: 11%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
|---|---|---|
| 2025 | 7.0 | 6.31 |
| 2026 | 8.2 | 6.66 |
| 2027 | 9.5 | 6.91 |
| 2028 | 10.7 | 7.04 |
| 2029 | 12.0 | 7.06 |
Total Present Value of FCFs = 34.00 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (12.0 × 1.04) / (0.11 – 0.04)
= 12.48 / 0.07 = 178.29 billion
Present Value of Terminal Value
= 178.29 / (1.11)^5 = 106.06 billion
Enterprise Value Calculation
= 34.00 + 106.06 = 140.06 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 15.58 – 9.58 = 6.00 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 140.06 – 6.00 = 134.06 billion
Per-Share DCF Value
Shares Outstanding = 427.76 million
Per-Share Value = 134.06 / 0.42776 = $313.39
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $313.39 | $973.03 | -67.80% |
Based on the DCF valuation, Netflix appears overvalued. The estimated intrinsic value of $313.39 per share is significantly below the current market price of $973.03, resulting in a -67.80% Margin of Safety.
This suggests that Netflix is trading well above its intrinsic value based on fundamental cash flow analysis.
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