TLDR
- NFLX is down 44% over the past year, trading at 24x trailing earnings — well off its 50x+ peak valuation
- Q1 revenue hit $12.25 billion, up 16% year-over-year, beating internal forecasts
- Free cash flow nearly doubled to $5.1 billion in Q1, with FY2026 consensus estimates at $13.2 billion
- The ad-supported tier now accounts for over 60% of new sign-ups in eligible markets, with ad revenue on track to double to $3 billion in FY2026
- Wall Street holds a Strong Buy consensus — 24 Buy ratings, 8 Holds, zero Sells — with an average price target of $114.80
Netflix $NFLX has dropped more than 40% over the past year. The stock is now trading around $73, down from a record market cap of $569 billion last summer. But beneath the painful chart, the financials are telling a different story.
In Q1 2026, Netflix reported revenue of $12.25 billion — up 16% year-over-year and ahead of its own forecasts. Operating income rose 18% to $3.96 billion. Operating margins expanded to 32.3%.
Free cash flow nearly doubled in Q1 to $5.1 billion. That figure was boosted by a $2.8 billion termination fee from the unwinding of the Warner Bros. Discovery deal, but even stripping that out, underlying free cash flow margins have moved above 20%.
Wall Street expects free cash flow to reach $13.2 billion for the full year 2026 and climb to $14.3 billion in 2027. At current prices, NFLX trades at roughly 22x next year’s projected free cash flow.
The sell-off was triggered by a combination of factors. Reed Hastings stepping back from leadership gave investors pause. Management’s full-year guidance was read as conservative by some analysts. And a 37% spike in content spending to $4.85 billion early in the year added fuel to bearish arguments.
The stock’s drop below key long-term moving averages triggered further selling across retail and institutional portfolios, deepening the decline.
Ad Tier Becomes a Real Growth Driver
The advertising layer, once viewed as a defensive add-on, has become a meaningful part of the business. The ad-supported plan now accounts for more than 60% of new sign-ups in markets where it’s available.
Total advertising revenue is on track to double year-over-year and hit $3 billion in FY2026. Netflix plans to expand the ad tier to 15 additional countries in 2027.
Live content is adding to that ad inventory. WWE Raw and the World Baseball Classic have pulled in daytime and live viewers — the kind of audience that commands premium ad rates.
Efficiency Numbers Stand Out
On efficiency metrics, Netflix leads its sector by a wide margin. Return on assets sits at 23.7% — more than triple Fox Corp’s reading. Return on invested capital is 28.8%. Return on equity is 48.5%.
Revenue growth of 16% for a company doing over $47 billion annually is unusual. Analysts are projecting around 12% annual growth over the next three years.
The valuation picture has shifted. From 2023 through 2025, NFLX regularly traded above 50x earnings. It now sits at 24x trailing earnings.
Wall Street’s consensus is a Strong Buy — 24 Buy ratings, 8 Holds, and no Sell ratings. The average price target of $114.80 implies roughly 61% upside from current levels.
The paid subscriber base now exceeds 300 million globally.
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