Is Netflix Stock an Undervalued Stock to Buy? | NFLX Stock Discounted Cash Flow Valuation

SUMMARY

Parkev Tatevosian, CFA, presents a detailed discounted cash flow analysis of Netflix, arguing that the company is undervalued at current market prices. He highlights the impact of global streaming trends, content creation strategy, and capital structure optimization on Netflix's future growth and fair value.

MAIN POINTS

• Netflix stock has declined about 6.5% year-to-date in 2026 and is being overlooked by investors following the Warner Brothers acquisition saga. [0:00]
• Projected free cash flow for Netflix is estimated to grow from $13.2 billion in 2026 to over $51 billion by 2035, driven by global streaming adoption and content investment. [1:01]
• The availability of sports content on streaming platforms is accelerating the shift away from cable and satellite subscriptions. [2:01]
• Netflix's focus on original content creation, supported by its large subscriber base and data analytics, is seen as a key competitive advantage for future growth. [4:01]
• A weighted average cost of capital of 10.44% is used, with forecasts that Netflix will increase its debt ratio over time due to lower borrowing costs. [6:02]
• The calculated intrinsic value per share for Netflix is $125, compared to the current market price of $87.68, suggesting the stock is undervalued. [8:00]

DETAILED ANALYSIS

Netflix's stock performance in 2026 has been subdued, with a decline of approximately 6.5% year-to-date, as investor attention has shifted toward other industry events such as the Warner Brothers acquisition. A discounted cash flow (DCF) analysis is employed to estimate the fair value of Netflix, incorporating projected free cash flow, a weighted average cost of capital, and adjustments for capital structure. Free cash flow is forecasted to rise from $13.2 billion in 2026 to over $51 billion by 2035, reflecting the ongoing global transition from traditional cable and satellite television to streaming platforms.

This transition is expected to accelerate further as sports content, previously a major draw for cable subscribers, becomes increasingly available on streaming services.

Netflix's evolution from a content aggregator to a prolific creator of original programming is highlighted as a central driver of its growth prospects. The company leverages its vast subscriber base—estimated at over 300 million paying users—to gather extensive viewing data, enabling it to produce content that closely aligns with audience preferences. This data-driven approach, combined with significant revenue streams, allows Netflix to invest heavily in content creation at a scale unmatched by competitors, reinforcing its competitive advantage.

The analysis acknowledges the inherent uncertainty in forecasting long-term business performance and incorporates a discount rate of 10.44% to account for risk and the time value of money. The cost of equity is calculated at 12% using the capital asset pricing model, while the after-tax cost of debt is set at 5.75%. A target capital structure of 25% debt and 75% equity is assumed, with the expectation that Netflix will gradually increase its use of debt financing as it matures and its risk profile improves.

The present value of Netflix's future cash flows is estimated at $529.76 billion, leading to a calculated equity value of $527 billion. When divided by the number of shares outstanding, this results in an intrinsic value per share of $125, significantly above the current market price of $87.68, indicating that Netflix may be undervalued.

LINKS

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• Parkev Tatevosian's book on a six-step investing framework.
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