Netflix Earnings: Strong, as expected; 2026 guidance confirms decelerating growth
We think Netflix stock is moderately overvalued.
Mentioned: Netflix Inc (NFLX)
Key Morningstar metrics for Netflix
- Fair Value Estimate: $77
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: High
What we thought of Netflix’s earnings
Netflix’s NFLX fourth-quarter revenue rose 17% year over year (excluding currency tailwinds). For the full year, revenue also increased 17%, and the operating margin expanded 3 percentage points, to 29.5%. Guidance for 2026 is for 11%-13% organic sales growth and 2 percentage points of margin expansion.
Why it matters: The material growth slowdown is consistent with our forecast, based on a mature US market. In our view, Netflix needs international markets to grow at a high-teens rate to maintain the midteens average annual growth, but recent results don’t support that level.
- Sales in the US and Canada increased 15% in 2025, but were buttressed by subscriber additions at the end of 2024 and a US price increase last January. We expect a much smaller contribution from new members and pricing in 2026, with a US price increase before the fourth quarter unlikely.
- Excluding currency, we estimate international sales growth was only 14% in each of the last two quarters. We suspect the vast majority of roughly 25 million new members in 2025 were in international markets.
The bottom line: We maintain our forecast, and the time value of money brings our fair value estimate to $79 from $77. With outsize growth expectations no longer priced into its stock, Netflix appears fairly valued. With a narrow moat, it remains the highest-quality of its closest peers, in our view.
Key stats: Free cash flow guidance of $11 billion for 2026 was also in line with our estimates, but likely disappointed the market.
- Cash content spending is expected to rise to nearly $20 billion in 2026, which would be a jump of about 11.5%. This is a good use of cash, in our view.
- With some costs, including the Brazilian tax issue the firm reported last quarter, getting pushed to 2026 from 2025, we don’t think cash flow and margin guidance are as disappointing as the market may have initially taken them.
