🤔What is the Market Momentum column about?🤔
I don't know if you're aware of this, but a thorough fundamental in-depth analysis can take 40-50 hours. As an investor, it's impossible to put that much energy into analyzing each company if you want to effectively manage a long enough watch list. That's why I created the Market Momentum column, which provides a snapshot of each stock, especially Netflix, and roughly outlines current events. It is not an in-depth analysis, but rather just food for thought based on the current state.
My goal is not to give daily trading tips or analyze technical patterns. Instead, I provide quick, to-the-point fundamental mini-analyses that help you filter through the data. These impulses help you keep in mind whether the current price action of Netflix (NFLX) or another market participant is worth investigating further, or if it is just a passing market phenomenon.
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📒Table of Contents📒
I have created a table of contents to make it easier for you to navigate the content:
- 🎬 What is Netflix (NFLX) doing?
- 💵 Netflix (NFLX) Current Status and Competitors
- 🤵 Netflix (NFLX) metrics
- ✅ Netflix (NFLX): will you get used to it or will you run away?
- 📝 Thesis summary
❓ What is Netflix (NFLX) doing? ❓
Netflix (NFLX) is the world's largest streaming service, and by the end of 2025, it had become something many didn't expect: a bold Hollywood powerhouse with a bigger appetite. The Los Gatos, California-based company started out as a DVD rental company in 1997 and has gradually transformed itself into the undisputed number one player in the streaming world. It now has 325 million paying subscribers in 190 countries, and viewers consumed a total of 96 billion hours of content on the platform in the second half of 2025.
The business model is simple: subscribers pay monthly for access, and the more time they spend on the platform, the lower the churn and the more friends they recommend the service. In addition, since 2023, a second revenue leg has been added: the ads tier, which attracts cheaper subscribers while also generating advertising revenue. In 2025, this segment has already exceeded $1.5 billion - and this is only the third year since ads have been sold at all.
The revenue model now relies on two pillars: subscription fees and advertising. However, at the end of 2025, Netflix made a third bet of a completely different size: the acquisition of Warner Bros. at an enterprise value of $82.7 billion. This decision fundamentally changes Netflix's risk profile - and this is where investors should think very seriously.
🏆 Netflix (NFLX) Current Status and Competitors 🏆
Netflix’s position in the streaming market is both stable and challenged. According to Nielsen data from December, Netflix accounts for 9% of all TV viewing time in the US – a record, and an important figure because linear TV still accounts for more than 40% of viewing time. This means that the top half of the market is still not “streaming-converted,” which means there is potential for growth.
The direct competitors can be divided into three groups. The first is the group of content-based streamers: Disney+, along with Hulu, Apple TV+ and Paramount+, all of which have strong intellectual properties, but none of which comes close to Netflix’s size and content investment capabilities. The second group is the platforms of the tech giants: Amazon Prime Video and YouTube are increasingly competing for viewing time, especially in the area of live sports broadcasts. The third and most exciting challenger is Max (HBO), for which Netflix is currently offering $82.7 billion, meaning that if the deal is done, the company will crush this rival.
Netflix made big strides in live content in 2025, with the Anthony Joshua-Jake Paul fight generating 33 million average viewers per minute, and the NFL Christmas games driving record subscriptions. Netflix will broadcast all games of the 2026 Baseball World Series in Japan, its first major live sporting event outside the United States. Live sports and event-based content are one of the key differentiators over the next five years.
🎢 Netflix metrics 🎢
📊 Exchange rate and the Warner shock
Netflix’s share price is down nearly 18% from its peak in 2026, while it is down -41% from its all-time high, which seems surprising for a company that met or exceeded all of its financial targets in 2025. However, the market reacted to one thing: the Warner Bros. acquisition. The stock immediately fell sharply when the deal was announced, with investors spooked by the estimated $90 billion in debt after the acquisition, the $5.8 billion breakup fee that would have to be paid if regulators blocked the deal, and opposition from Hollywood unions and theater owners.
Important context: Netflix's share price fell nearly 75% in 2022, when subscriber numbers first declined and the market thought the streaming boom was over. Those who held on then earned one of the best returns in the entire stock market in 2023-2024. The current drop, of course, does not guarantee the same; betting on Warner is a qualitatively different risk than a momentary subscriber decline.
📌In practice: The bad news is that in most cases the market values the success of a transformative acquisition well, so if the price has moved down, it is often more likely to fail than not. The problem is the price and the associated destruction of shareholder value, although the all-cash deal, which the second one changed to, is a step better than the dilution of shares. But, the fall is also an opportunity, and those who do not already own Netflix (NFLX) shares can buy a beaten-up stock. It is also worth considering whether Netflix had other options or whether it was a logical step to take a competitor out of the market? But investors will decide this in the long run.
🪙Valuation: EV/NOPAT vs. price
In previous analyses, I wrote that you can use P/E, EV/EBITDA or even P/FCF, but I prefer to compare the NOPAT yield to the price. However, the current valuation is not enough to determine whether the stock is cheap, since you don't know what the historical average was, but I calculated this for you:
- 🎯NOPAT yield currently: 3.41%
- 🕒NOPAT yield 3-year average: 2.7%
- 📊NOPAT yield 5-year average: 2.72%
- 🗓️NOPAT yield 10-year average: 1.97%
- 📜NOPAT yield 20-year average: 2.39%
Based on the above, it can be concluded that Netflix is currently cheap, but as you can already guess from the drops in the price chart, it is a fairly volatile stock. For example, it fell 75% in 2022, but drops of 30-40% are not uncommon. So, anyone who appeals that the stock will continue to fall may not be very wrong. Since this is a transformative acquisition, the outlook for Netflix (NFLX) has also changed significantly.
The key question regarding valuation is: what will free cash flow look like after the Warner deal closes? If the integration is successful and HBO's content library brings meaningful subscriber retention and acquisition, then it doesn't seem scary at the current multiple perspective. However, if debt service erodes free cash flow, the market will punish you mercilessly.
🫰 Revenue and profitability
The numbers for 2025 speak for themselves. Annual revenue grew 16% to $45.2 billion, the first year Netflix has exceeded the $45 billion mark. Q4 2025 brought in $12.05 billion in revenue, up 17.6% year-over-year, beating all analyst expectations. Operating margin rose to 29.5% year-over-year, up from 26.7% in 2024—a 2.8 percentage point improvement in a single year.
The advertising segment is the most exciting growth story: in 2025, the ads-tier revenue exceeded 1.5 billion USD, which is more than 2.5 times more than in 2024. Management expects advertising revenue to double by 2026. It is worth adding to this: 55% of new entrants chose the advertising package in the first quarter of 2025. This means that Netflix can attract a sensitive, lower-paying subscriber layer with a lower entry level, which it would have lost earlier. Unfortunately, my data source does not publish this in this form, because Netflix changed the way it reports data at the beginning of 2025, so you can only see the previous metric, which shows the change in the number of users.
The 2026 forecast is also strong: $50.7 billion to $51.7 billion in revenue, up 12% to 14%, an operating margin of 31.5%, and nearly $11 billion in free cash flow, assuming the Warner deal is not closed and the acquisition debt service is not burdened by the year. That depends on Warner shareholders voting on the transaction in April.
🤞 Efficiency: ROIC and free cash flow
Netflix's ROIC (return on invested capital) has increased dramatically over the past two years, jumping from 9.7% in 2019 to between 25-27% by 2025, depending on the calculation method. This puts the company in the top 10% of the industry. The WACC is around 11-12%, so Netflix is creating meaningful value on its capital, which was not always the case in the early years.
Free cash flow also rose sharply: $6.9 billion in 2023, $6.9 billion in 2024, and $9.5 billion in 2025, a 36% annual increase. This is especially important because Netflix's (NFLX) business model is fundamentally different from classic CAPEX-intensive industries: content spending is not CAPEX, but an operating expense, and actual infrastructure capital investment (buildings, servers) was only $688 million per year in 2025.
However, it is worth remembering that these numbers that I have shown so far do not include the acquisition figures. And this paints a rather distorted picture, and I will show you why in the next chapter.
🎲 Risk factors: Warner debt, breakup fee and content price
The issue of Netflix's (NFLX) debt can be addressed relatively easily:
- 💵cash: ~9 billion USD
- 👛net debt: ~8 billion USD (debt-cash)
- 💵net profit: ~$11 billion
The debt issue was relatively straightforward until the end of 2025: Netflix’s net debt was manageable, and free cash flow more than covered its liabilities. The Warner deal, however, radically changes that picture. After the acquisition closes, Netflix’s estimated debt load could reach $90 billion, about six to seven times its current annual operating profit. This is not a risk of insolvency, but it puts serious pressure on free cash flow and locks up capital allocation headroom for years.
The management is already pausing the share buyback program until the Warner deal is closed – this in itself says a lot about the priorities of capital management. In Q4 2025, there was another $2.1 billion in buybacks, with $8 billion still available from the existing framework. The boys were very busy, buying back $9 billion in 2025, while the amount of stock-based compensation is negligible.
The price risk of content is also not negligible: Netflix plans to spend USD 20 billion on content in 2026, a 10% increase compared to 2025. If the Warner integration takes place, this amount will increase further, but in return, the existing HBO and Warner Bros. library will partially replace the need to produce new content, which may be more efficient in the long run.
📌In practice: With the above, not only will debt skyrocket, but a loan repayment expense will also appear on Netflix's (NFLX) side. This is a problem because as long as the economy is on the rise, every company can pay these, because everyone takes revenue and profit for granted. However, only one thing is constant: the amount of debt. If the economy turns around and profitability suffers, Netflix (NFLX) could be in huge trouble. This is not a really good value proposition for me.
💵 Netflix (NFLX): will you get used to it or will you run away? 💵
In the case of Netflix, the battle between bulls and bears is sharper than usual because the Warner acquisition makes the question binary: either it will prove to be the best content strategy move of the decade, or a mammoth deal drowning in debt and difficult to integrate.
🐂 Bulls say (Optimistic scenario):
- 🎬 The Warner deal is the best content purchase of the decade: HBO is the industry's most recognized premium content brand, bringing Game of Thrones, The Mobster, Succession, the Harry Potter franchise, and the DC Universe to its 325 million subscribers worldwide. This is not just a library expansion: the prestige of the HBO brand elevates the perception of Netflix's premium package and justifies the higher pricing.
- 🌐 Advertising revenues are only just starting to really pick up: The $1.5 billion in advertising revenue in 2025 is just 3.3% of Netflix's total revenue, meaning another nascent revenue engine is ramping up. If advertising revenue reaches $4-5 billion by 2027, that in itself will kickstart a new cycle of value creation.
- 🪙 The “heads I win, tails you lose” position: If the deal goes through, Netflix will acquire one of the best content libraries in the world. If Warner terminates the deal, Netflix will receive a termination fee, which will be free money for the company. There is one exception: if regulators block the acquisition.
🐻 Bears say (Pessimistic scenario):
- 💸 The 90 billion USD debt is no joke: The post-acquisition debt level ties up a lot of operating profit and severely limits capital allocation flexibility. During the integration years, Netflix cannot buy back shares, paying dividends is not a realistic option, and any macro shock (recession, advertising market shutdown) will deal a huge blow to the company in addition to debt service.
- 🏛️ Regulatory risk is not zero and is expensive in both directions: If the deal goes through, antitrust authorities may impose significant conditions (content access, licensing, etc.). If it doesn't go through, Netflix will have to pay a termination fee, meaning the $5.8 billion WBD will receive, which is 61% of 2025 free cash flow as a single item.
- 🎭 Hollywood integration is harder than you think: Warner Bros. is a nearly 100-year-old institution with its own studio, union agreements, and studio logistics. There may be serious tensions between the Netflix culture (data-driven, streaming-centric, vertically integrated) and traditional Hollywood studio culture that cannot be simply smoothed out with money.
📝 Netflix (NFLX) Situation Summary 📝
Netflix was one of the best-valued stocks in the global market in 2025: $45 billion in revenue, a 29.5% operating margin, $9.5 billion in free cash flow, 325 million subscribers, and a budding advertising business. If you were to look at these numbers alone, the stock is currently priced very attractively relative to historical multiples.
But Netflix is not the same stock today as it was in December 2024. With the Warner deal, the company has moved out of the pure player category in the streaming market and into a much more complex, debt-laden, regulatory-risky acquirer-integrator role. This is not necessarily a bad thing, but it is definitely a different and much riskier business than it has been in before. Anyone who owns or wants to buy Netflix now has to decide not only whether they trust the streaming business model, but also whether they trust the integration skills of Ted Sarandos and Greg Peters.
Remember, this mini-analysis is not a substitute for your own research, but it will help you decide whether it is worth devoting dozens of hours to an in-depth analysis of Netflix (NFLX) or whether it is enough to just keep the paper on your watchlist.
If you want to analyze further, use iO Charts' stock finder and portfolio manager, which you can access here: iO Charts.
Frequently Asked Questions: Professional Questions About Netflix (NFLX)
What exactly is Netflix buying from Warner Bros.?
Netflix is acquiring Warner Bros. Entertainment, DC Comics/Studios, HBO Max and HBO, as well as the entire Warner Bros. library, for an enterprise value of $82.7 billion. What Netflix is NOT getting: the cable networks (CNN, TNT, HGTV, Discovery+), which will be spun off into a separate publicly traded company called “Discovery Global” by Q3 2026, if the merger goes through.
What is churn and why is it key at Netflix?
Churn is the churn rate: the percentage of subscribers who cancel their subscriptions in a given month. Netflix doesn’t disclose this metric, but industry estimates put it at around 2-3% per month, one of the lowest in the industry. The lower the churn rate, the less new subscribers it needs to acquire to maintain revenue—and the more valuable each existing subscriber is, as measured by ARPU (average revenue per subscriber).
Why did Netflix stop publishing its subscriber numbers quarterly?
Management decided in early 2024 to focus on engagement (watching hours) and revenue metrics instead of subscriber numbers. The rationale: in a more mature business, revenue per subscriber (ARPU) and engagement are the true value metrics. The more cynical reading: subscriber growth slowed in mature markets, and the number was no longer an impressive enough marketing tool. For example, they could have published both and then this wouldn't be a problem now.
What is content spending, and why is it different from CAPEX?
In the case of Netflix, the cost of producing and licensing content (content spending, planned for 20 billion USD in 2026) is not shown as capital investment (CAPEX), but as an operating expense, gradually amortized. This means that it does not have to be deducted from operating cash flow when calculating free cash flow, so Netflix's free cash flow is much "cleaner" and higher than many would expect. The actual infrastructure CAPEX (servers, offices) was only 688 million USD per year in 2025.
What happens if regulators block the Warner acquisition?
In that case, Netflix would be required to pay Warner Bros. Discovery a $5.8 billion breakup fee, one of the largest such fees ever seen. Warner Bros. would likely continue negotiations with Paramount Skydance, although the price of Paramount's offer ($108 billion, but for the entire company) and its debt load are worrisome. Netflix's stock price would likely rise immediately as the uncertainty surrounding the acquisition dissipates, but the $5.8 one-time expense would have a significant free cash flow-diluting effect in the year.
Legal and liability statement (aka. disclaimer): My articles contain personal opinions, I write them solely for my own entertainment and that of my readers. The articles published here do NOT in any way exhaust the scope of investment advice. I have never intended, do not intend, and am unlikely to provide such in the future. What is written here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT in any way considered a guarantee to sell or buy financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.
