Netflix sentiment across social media channels is poor. The content is frequently descriped as subpar to brands like especially HBO. Advertisement tiers are frequently critized as well. With users frequently switching between platforms. Netflix monthly active users (MAU) in developed nations might decline.
I argue, the content at Netflix is not worse or better than the content at Amazon Prime, HBO or Disney. Netflix Originals like Squid Game, House of Papels, Narcos etc. is still a part of Netflixes libary. But a slight stagnation in viewing hours pr user, indicates that users are dissatified with Netflixes recent content. Viewing hours grew less than user growth. The change of Chief Content Officer (CCO), further hints this. Peter Rice will be taking over Bela Barjina. Peter Rice has a background from Century Fox, later Disney Generel Entertainment and A24 (independent production company).
When a diversified content libary like Netflixes is not resonating with audiences, it is most likely a marketing issue and not a content issue (though populair opinion is the latter). Promoting the right content to the right audiences, should be possible with Netflixes massive data and budget. Removal of KPI’s as of Q2 was certianly a red flag.
Netflix has the strongest top of funnel positioning in the video on demand (VOD) sector – with watching Netflix being synomous for VOD. YouTube and the rise of UGC is a real contender for the customers viewing time. Netflix has not entried this area, but is diversifying into gaming and sports. The argument for the latter being that “not all viewing hours are created equal”, with users signing up for specific sport events.
Netflix is running a consistent high content spend, at around 1.1 times amortization – and a massive sharebuyback program. In 2025 Netflix spend 17 Billion USD on content and in the last 9 months 15 billion USD. The last 9 months Netflix spend:
Sharebuyback yield equals a 9 month 4% yield at a shareprice of 63 USD, and is part of a 25 billion sharepurchase program announced in late april. By decreasing it’s content spend and increasing its marketing and sales expenditures, Netflix could increase the perception of its brand and thus improve its market positioning and pricing power. Public information does not indicate this is the direction Netflix is taking.
Moving from the value proposition Netflix provides it’s investors, to the value proposition Netflix provides its customers – the subscription cost offer signficant entertainment value for the price, relative to other live entertainment offerings – with Netflix costing a little more than a mid price meal at a resturant. Netflix is slightly more expensive than peers, but broadly speaking they are all increasing prices year over year.
Netflixes pricing power and user growth in its biggest market US & Canda, is affected by a middle class under preassure.
Further analysis should adress the competitive positioning in APAC & LATAM. These two areas are out of the scope of this analysis – but are important growth areas.
The sheer amount of Netflix Originals and lack of identity, muddles the perception of Netflix Originals – with Netflix Originals no longer being a quality stamp. From a marketing management perspective, Netflix could consider further dividing its Originals into categories that better reflect their target audience, production costs or similar. When
Netflix recently acquired InterPositive for 587 million USD. This acquisition is expected to lower production time, by significantly speeding up colour grading process etc. While it won’t reduce content spend, it should lower production costs and thereby increase content output.
The Paramount/WBD merger creates a highly leveraged competitor with questionable management. This entity will spend the foreseeable time merging and dealing with regulation, though the unified content libarary will be more comparable to Netflixes. Further, it reduces the competitive advantages Netflix gains from its sheer scale. Note. Amazon has a massive net income that easily can compete with Netflixes size.
Netflix trades significantly below historical norms on a price to earnings basis, but given market saturation and increased VOD competition, this might not be unreasonable.
To address the total addressable market, one might consider the differences in demographics viewing habits. Younger cohorts (gen z, gen alpha and millenials) are increasingly gaming and watching user generated content. The less price sensitve demographics (baby boomers and gen x) are still predominately watching VOD and the move into sports might provide significant optionality for price increases.
Netflix is required by law to have 30% local produced content (in Europe). This creates a moat for new entrants, but levels the playing field with incumbents. Amazon & HBO/Paramount has wide access to local content, due to their ownership of local studios. Especially Amazon can afford to compete on content and marketing.
Netflix’s algorythm might be prioritizing low velocity content at the expense of high quality content. If a viewer comes home tired after work, they might rather watch something easy, at the expense of a high quality show. This negatively affects the perception of the content. Ted Serandos and Greg Peters have historically emphasized that the product and the ui does the marketing. Leaving the marketing expenditures untouched and changing cco, indicates that this is the continued direction. Which in my opionion is a massive mistake. Again, percieved brand quality should have a positive affect on pricing power and return on marketing expenditures.
Netflix has over a 10 year period consistently improved margins and grown revenue – while it is not a indicator for future performance, it is certainly pointing towards excellent management. Also the company exhibits quality indicators such as massive FCF, profitability and a solid balance sheet. Thus Netflix command a premium valuation. Note that the lack of marketing efforts with a consumer facing brand in a competitive industry, indicates weaker management.
Q3 Earningscall highlights:
- And to be clear, we want to grow view hours faster. We’re not satisfied. We’re working on it.
- (…) overall engagement, which we think of is the sum total of actual value that we are delivering to members. So this is quality, quantity and variety of viewing. That remains healthy, and it drives our business model. And the best evidence that we’ve got that we’re delivering that value is churn. We’ve got healthy retention in every region. Q3 churn both globally and in the United States improved year-on-year. It was better than forecast. It’s already industry-leading. * Good information with regards to quality.
- (…) it’s premature to issue full year 2027 guidance. We’ll do that on our kind of next call on our Q4 call. But our financial objectives are unchanged. We look to sustain double-digit revenue growth. We look to expand margins, and we look to increase free cash flow. *The guided growth makes it cheap. Market dosent believe.
- Bela had an incredible decade long run here. (…) She also did the hard work of building this incredible international team who’s been making local for local content around the world, which has become a great competitive differentiator for us over the last decade. (…) But I know that we could do better, (…) Now we’ve seen an opportunity to take our slate to the next level. especially in the U.S. where we can have an outsized impact when we create a big buzzy show that members love and talk about all over the world. * Imo a bad argument for leadership changes. More focus on big US titles it seems.
- (Therandos) Look, our business and our business flywheel are working. There is no need for a fundamental shift in the strategy. We do need better execution in the U.S. our content around the world is largely working as you heard a couple of examples there from Greg. But we see titles across Latin America, EMEA, APAC, driving engagement, subscriber growth, revenue and profit. * Argument that they are continuening not doing marketing. also if content around the world is so great as emphasized above. Why change focus to US.
Profitability (FY 2025):
Gross margin = 49%.
Net income margin = 24%.
Return on assets = 15%.
Liabilities:
Liabilities/assets = 52%.
EBITDA/Interest = 18.5
2026 PE = 20x.
2026 EV/FCF = 24x.
Analyst expectations:
2026 PE = 20.4x
2027 PE = 19.2x
2028 PE = 16x
2026 guidance is 13-14% revenue growth (12% FX neutral) and a operating margin of 31,5%.
TTM pe is posetively affected my a breakup fee at approximately 10%.
A 10 year DCF; exit multiple 20, revenue growth 10% and operating margin improving 0,25% yoy.
> 6% discountrate. Fair value 115 USD.
> 8% discountrate. Fair value 85 USD.
If Netflix can maintain high single digits growth, then the current valuation is attractive. Note that quality companies typically trade at a premium.
Netflix is my second biggest investment at around 15% of portfolio.
Not financial advice. I can have made mistakes. Always do your own due diligence.
Things that must still be added and emphasized (somewhat work in progress)
When remuneration is tied to operating margin … (might be too far fetched).
Fact check the decline in viewing hours. Address the balance sheet (and especially the high amount of content on it – and how it is amorterized). Also off balance sheet content obligations.
Note that the 50+ cohert based on Nielsens smth – shows that older people increasingly watch youtube. and that youtube is twice the size. https://www.nielsen.com/data-center/the-gauge/
Address currency risk. How much is hedged? *
Conclusion
Market Positioning,
User Sentiment
Brand equity
Valuation