Netflix
The business, in plain English
What it sells · how it makes money · what changed
Netflix charges a monthly subscription — and, increasingly, shows advertisements — for a library of films and series that it mostly pays to make or license, now alongside live sport, games and video podcasts, in almost every country outside China. It does not report subscriber numbers any more; what it reports is money. In 2025 it took in $45.2 billion and earned $11.0 billion. It is worth about $296 billion.
The economics are those of scale. A series costs the same to make whether 10 million or 100 million households watch it, so the largest service can spend the most on content while spending the least per subscriber — and every new member or price rise falls largely to profit. That is why Netflix's operating margin has risen from 13% in 2019 to a guided 31.5% this year, and why its advertising business, expected to bring in about $3 billion in 2026, roughly double last year's, matters so much.
Advertising share is our approximation from Netflix's ~$3bn guidance against $51.0–51.4bn of 2026 revenue; Netflix does not report a formal split.
★★ The machine, the one-offs — and the hours
What Netflix has built, what the last four quarters really earned, and the worry behind the fall
The machine. Since 2019 revenue has grown from $20.2bn to a guided $51.2bn, and operating margin from 12.9% to 31.5%. In the second quarter of 2026 revenue rose 13% to $12.6bn and operating margin was 33.4%. For the third quarter Netflix guided to revenue growth of about 11.7% — a little below what analysts wanted, which is what first knocked the shares in July.
The one-offs (§5.7). In December 2025 Netflix agreed to buy Warner Bros.' studios and HBO Max. Paramount Skydance then bid for the whole of Warner Bros. Discovery, and on 27 February 2026 Warner walked away from Netflix, which declined to raise its offer and collected a $2.8 billion break fee. That fee inflated the first quarter: reported earnings of $1.23 a share, about $0.71 without it. A year earlier, the third quarter of 2025 had been cut by a $619m charge in a Brazilian tax dispute. Strip both out and trailing earnings are about $2.78 a share, not $3.18 — about 26 times, not 22. The fee also sits inside this year's consensus earnings ($3.60) and the $12.5bn free cash flow guide.
The hours. What has driven the shares from about $81 at the start of September to $71 is a different worry. In September Wells Fargo cut Netflix to underweight, estimating that hours watched per member will fall about 4% in the second half and that its top original series are drawing far fewer hours; HSBC cut to hold, citing YouTube's gains in television viewing. Netflix itself reported that viewing grew 2% in the first half, to more than 97 billion hours, a little faster than in 2025, despite competition from the Winter Olympics and the World Cup.
★ For a subscription business, time spent is the leading indicator; money follows it with a lag. Flat viewing does not yet show in revenue, which is growing 12–13%. If hours per member really start to fall, price rises get harder and cancellations rise — so the analysts are right to watch it. We would rather watch Netflix's own twice-yearly engagement reports than estimates built from third-party panels, and we do.
The moat
Scale in a business where scale is everything — and a rival that costs nothing to watch
Netflix's moat is scale economics: the biggest audience pays for the biggest content budget, which attracts the biggest audience. Competitors spent tens of billions trying to match it and most have retreated into mergers — the Warner Bros. contest was itself a symptom. Netflix also has a brand, a recommendation engine, and the habit of hundreds of millions of households.
The limit is that attention is the true currency, and Netflix does not own the only way to spend it. YouTube, free to watch and fed by millions of creators at no content cost, is now a larger share of television viewing in America than any streaming service. Netflix's answers — live events (NFL games at Christmas and Thanksgiving, boxing, baseball), video podcasts and creator partnerships — are sensible, but they are answers to a real threat. We score the moat 7.
Management, capital & ownership
Verified on the day of writing
A decision worth admiring. Management bid for Warner Bros.' studios and streaming business, was outbid, and declined to overpay — taking a $2.8 billion fee instead of an $80-plus billion acquisition financed with debt. Walking away is the hardest discipline in business. We think owners will look back on it well.
Capital returns. Netflix pays no dividend. It returns cash through buybacks — $9.1bn in 2025 and a record $4.7bn in the second quarter of 2026 alone, with $27.1bn of authorisation left. Buying back shares after a 43% fall is exactly when buybacks create the most value, provided the business is intact. Gross debt is $14.4bn against $9.1bn of cash; interest is covered about 17 times.
Ownership is institutional, led by the index funds. Insider activity is small: a director exercised options and sold a few hundred shares a day at $75–78 in early September.
The numbers — and three things our feed gets wrong
Sourced from the live pull · TTM unless noted
| Metric | Value | Read |
|---|---|---|
| Revenue 2025 · 2026 guide | $45.2bn · $51.0–51.4bn | ▲ +13–14% |
| Operating margin 2025 · 2026 guide | 29.5% · 31.5% | ▲ Rising |
| EPS TTM — reported · without one-offs | $3.18 · ~$2.78 | ◆ See Part II |
| Free cash flow 2025 · 2026 guide | $9.5bn · ~$12.5bn | ▲ Incl. the $2.8bn fee in 2026 |
| Return on invested capital | 24.3% | ▲ High |
| Gross debt · cash | $14.4bn · $9.1bn | ▲ Net debt ~0.2× EBITDA |
| View hours, H1 2026 | 97bn+ (+2%) | ◆ The number to watch |
| What the feed says | Value | What is true |
|---|---|---|
| Trailing P/E | 22.0× | Includes the $2.8bn Warner fee and the $619m Brazil charge. Without them, ~26×. |
| 52-week low | $75.01 | Stale: the shares closed at $71.15 and the low was $65.08 on 17 July 2026. |
| Segments (2025) | 'Domestic DVD $765m' | Old segment labels mixed with current data; Netflix closed its DVD business in 2023. |
Risks, lawsuits & controversies
Verified afresh, 27 September 2026
First, engagement. If hours per member fall, the long chain of price rises that has powered Netflix's margins gets harder to sustain. Netflix's own figures show growth of 2% in the first half; the second-half estimates of decline are analysts', built from third-party data. The next Netflix engagement report will settle part of the argument.
Second, competition for attention — above all from YouTube, which pays nothing for most of its content — and the cost of the live events Netflix is using to respond. Sports rights are bid up by every deep-pocketed rival.
Third, the courtroom — small. The Brazilian tax dispute over non-income-tax assessments cost $619m in the third quarter of 2025, covering 2022 onward; Netflix said it did not expect a material impact on future results. We found no other matter we would call material.
★ Valuation
A great business priced for a decline it has not yet shown
| Yardstick | Value | Reading |
|---|---|---|
| Share price · market value | $71.15 · ~$296bn | −43% from the $124.86 high. |
| P/E — TTM without one-offs · 2027e · 2028e | ~26× · 18.7× · 15.6× | Consensus $3.81 (2027) and $4.55 (2028); 2026 ($3.60) includes the Warner fee. |
| Free cash flow yield (2026 guide) | 4.2% (~3.5% without the fee) | Before growth. |
| Our value range | ~$75–95 | 20–25× 2027 earnings for a business growing earnings in the high teens. |
| Street target (mean · range) | $91.56 · $57–119 | +29%, with a very wide spread — from sell to strong buy. |
| Feed DCF | $111.48 | +57%. Not used, but a reminder that the cash flows, not the hours, drive value. |
What does $71 assume? Roughly that earnings grow 10% a year rather than the high teens analysts expect. If engagement holds and advertising keeps doubling, that is too pessimistic, and today's price will look generous in three years. If hours per member do start falling, Netflix still has pricing power and a cost advantage, but the multiple would stay low and returns would come mainly from buybacks. Either way, the owner is paid in a business that converts about a fifth of its revenue into free cash, even without this year's fee.
For most of its life Netflix was a business I admired and could not value. It burned cash to buy programmes, and the question was always whether the spending would ever stop. It has stopped. This year Netflix expects to turn fifty-one billion dollars of revenue into twelve and a half billion of free cash, with an operating margin above thirty per cent. The most expensive habit in entertainment has become one of its best businesses.
The market has spent the year marking it down anyway. First it disliked Netflix's attempt to buy Warner Bros. Then, when Netflix was outbid and — to its great credit — walked away with a two-point-eight-billion-dollar fee rather than overpay, it worried about the next quarter's guidance. Now it worries that viewers are drifting to YouTube. The shares are down forty-three per cent from their high.
That last worry deserves respect. For a subscription business, time spent watching is the leading indicator; revenue follows it with a lag. Netflix's own figures show viewing up two per cent in the first half — not a collapse, but not the growth of old. Some analysts expect a decline in the second half. I would rather wait for Netflix's own numbers than trust estimates built from panels, but I would be foolish to ignore the question.
Here is what I know. At seventy-one dollars you are paying less than nineteen times what analysts expect Netflix to earn next year, for a business that has grown earnings far faster than that, holds little debt, and is using its cash to buy back its own shares after a 43% fall. That is not a price that assumes success. It assumes a decline the numbers do not yet show.
Accumulate. Buy in stages, because the engagement question will take a few quarters to answer. Add with both hands near sixty-two dollars. And when the next engagement report arrives, read the hours before you read the revenue.
— The Buffett Lens · Dividend Line Research · counting the hours, then the dollars
Count the HoursA great business — 31.5% margins, $12.5bn of free cash, disciplined enough to walk away from Warner Bros. — at 18.7× 2027 earnings, below our ~$75–95 range after a 43% fall. The fear is engagement (view hours +2% in H1; downgrades on YouTube). It is fair, and not yet visible in revenue. Accumulate in stages; buy with both hands near ~$62. Read the next engagement report before the next revenue line.
You've just read Netflix the way we read every company.
The terminal that produced these numbers is free to use: 30 years of statements drawn as flows, a screener built around moats, Buffett's Desk, and an earnings feed read through the same lens. Opening an account takes a minute. No card.