IS NETFLIX A GOOD INVESTMENT?

Is Netflix a good investment? What is Netflix fair value / intrinsic value? Is Netflix a buy at current valuations? These are the question we are trying to find out in the following fundamental analysis.
The data used in the below analysis and discounted cash flow model comes from a combination of SharePad, Finbox, and the Netflix investor relations website. Additionally, the dcf model uses personal assumptions which are shared below.
Table of Contents
Company Overview
Fundamental Analysis
Valuation Review
- Analysts Targets
- Comparable Analysis
- DCF – EBITDA Exit – Valuation & IRR
- DCF – EBITDA Exit – Sensitivity Analysis
- DCF – Perpetual Growth Rate – Valuation & IRR
- DCF – Perpetual Growth Rate – Sensitivity Analysis
Valuation Summary
Company Overview
Netflix Fundamentals Introduction
Netflix Company Description
Netflix’s primary business is a streaming video-on-demand service now available in almost every country worldwide except China.
Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast.
In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.
Netflix Valuations
Current Share Price ($m) | 384.36 | Revenue ($m) | 29,698 |
Shares Outstanding | 442.95 | EBITDA ($m) | 6403 |
Market Cap ($m) | 170,252 | EBITDA Margin | 22% |
Cash ($m) | 6,055 | EV/EBITDA | 28 |
Total Debt ($m) | 15,393 | Debt / EBITDA | 2.4 |
Enterprise Value ($m) | 179,590 | P/E | 34 |
Netflix Revenue Breakdown – Region
Region | Revenue ($m) | % |
---|---|---|
United States | 10,800 | 43.1% |
Europe, Middle East, and Africa | 7,772 | 31.0% |
Latin America | 3,157 | 12.6% |
Asian-Pacific | 2,372 | 9.5% |
Canada | 953 | 3.8% |
Netflix Revenue Breakdown – Product
Product | Revenue ($m) | % |
---|---|---|
Streaming Revenue | 24,757 | 99.0% |
DVD Revenue | 239 | 1.0% |
Netflix Share Price History
Current Price: | 384.39 | 52 WK Low: | 359.70 | 52 WK High: | 691.69 |


Netflix Shareholder Ownership
Shareholder | Holding ($m) | % |
---|---|---|
Capital Research and Management Company | 57.50 | 13 |
Capital Group | 49.50 | 11.2 |
Vanguard Group Inc | 32.20 | 7.3 |
Capital Research Global Investors | 29.20 | 6.6 |
BlackRock Inc | 27.20 | 6.2 |
Fidelity Management & Research Company LLC | 20.30 | 4.6 |
Capital Research & Mgmt Co – Division 3 | 19.70 | 4.6 |
FMR Inc | 19.00 | 4.3 |
State Street Corporation | 16.20 | 3.7 |
Capital World Investors | 13.20 | 3.0 |
Vanguard Investments Australia Ltd | 12.80 | 2.9 |
BlackRock Fund Advisors | 9.24 | 2.1 |
T. Rowe Price Associates Inc. | 8.96 | 2.0 |
T. Rowe Price | 8.52 | 1.9 |
State Street Global Advisors | 8.35 | 1.9 |
Baillie Gifford & Co Limited. | 7.99 | 1.8 |
Geode Capital Management LLC | 6.98 | 1.6 |
Invesco Capital Management LLC | 6.94 | 1.6 |
Jennison Associates LLC | 6.26 | 1.4 |
Magellan Asset Management Limited | 5.84 | 1.3 |
Sands Capital Management LLC | 5.20 | 1.2 |
Northern Trust Corp | 4.76 | 1.1 |
State Street Global Advisors (Aus) Ltd | 4.52 | 1.0 |
Others | 62.5 | 14.1 |

Netflix Fundamental Analysis
Netflix Income Statement
Netlfix Income Statement Waterfall – 2021

The most significant impact on profit is the cost of sales which for Netflix includes depreciation and amortisation of content as the main driver. However, the amortisation of content is less than the spending on content, therefore inflating income for the period.
5 Year View

Revenue has grown significantly from 11,693m to 29,698m. Net income margin also increased dramatically from 3.5% to 17.2%. EBITDA margin in proportion to net income from 7.8% to 21.6%.
Netflix 5 Year Income Statement
2017A | 2018A | 2019A | 2020A | 2021A | |
Sales Revenue | 11,693 | 15,794 | 20,156 | 24,996 | 29,698 |
Cost of Sales | (8,033) | (9,968) | (12,440) | (15,276) | (17,333) |
Gross Profit | 3,660 | 5,827 | 7,716 | 9,720 | 12,365 |
Operating Expenses | (2,821) | (4,222) | (5,112) | (5,134) | (6,171) |
EBIT (Operating Income) | 839 | 1,605 | 2,604 | 4,585 | 6,194 |
Interest | (353) | (379) | (542) | (1,386) | (354) |
Income Before Taxes | 485 | 1,226 | 2,062 | 3,200 | 5,840 |
Income Taxes | (74) | (15) | (195) | (438) | (724) |
Net Income | 412 | 1,211 | 1,867 | 2,762 | 5,116 |
EBITDA | 911 | 1688 | 2708 | 4701 | 6403 |
Netflix Growth

Revenue growth has been declining over the last three years, with gross profit growth more or less static. Net income growth is higher vs three years ago, and EBITDA growth is lower.
Netflix Balance Sheet
Netflix Assets – Fiscal Year End 2021

Goodwill and Intangibles are predominantly made up of content assets.
Netflix Liabilities – Fiscal Year End 2021

Other Current and Other Non-Current Liabilities are primarily leasing of real estate and assets.
Netflix Equity – Fiscal Year End 2021

Netflix Balance Sheet – 5 Year View


Netflix Cash Flow Statement
Netflix Cash Flow From Operations – Fiscal Year End 2021

Other Operating Activities primarily consist of additions to content assets (new content), with depreciation expense being the depreciation of content assets (older content).
Netflix Cash From Financing – Fiscal Year End 2021

There was a positive share buy-back vs issuance of stock and positive debt repayments vs debt issued. However, this has contributed to the negative cash flow for the year.
Netflix Cash From Investing – Fiscal Year End 2021

Netflix acquisitions for 2021 include Roald Dahl Story Company (RDSC).
Netflix Cash Flow Statement – 5 Year View

2021 resulted in negative cash flow and a reduction in the cash balance. Lower cash from operation due to content expenses, lower cash from financing due to share buy-back and debt repayments, and lower cash from investing due to acquisitions contributed to the negative cash flow.
Netflix Valuation Review
Analysts View of Netflix
Netflix Price Target – Analysts’ Price Targets
Analyst Name | Firm | Position | Price Target | Action |
---|---|---|---|---|
Alan Gould | Loop Capital Markets | Buy | 700.00 | Reiterated |
Andrew Beale | Arete Research | Buy | 735.00 | Initiated Coverage |
Andrew Uerkwitz | Jefferies | Hold | 415.00 | Downgraded |
Benjamin Swinburne | Morgan Stanley | Hold | 450.00 | Reiterated |
Bryan Kraft | Deutsche Bank | Hold | 465.00 | Reiterated |
Christophe Cherblanc | Societe Generale | Sell | 340.00 | Maintained |
Daniel Salmon | BMO Capital | Buy | 650.00 | Reiterated |
Doug Anmuth | J.P. Morgan | Buy | 605.00 | Maintained |
Douglas Mitchelson | Credit Suisse | Hold | 450.00 | Downgraded |
Eric Sheridan | Goldman Sachs | Hold | 450.00 | Maintained |
Hamilton Faber | Atlantic Equities | Buy | 780.00 | Maintained |
Jason Bazinet | Citigroup | Buy | 450.00 | Upgraded |
Jed Kelly | Oppenheimer | Buy | 530.00 | Maintained |
Jeffrey Wlodarczak | Pivotal Research | Buy | 550.00 | Maintained |
John Blackledge | Cowen & Co. | Buy | 600.00 | Maintained |
John Hodulik | UBS | Buy | 575.00 | Maintained |
John Janedis | Wolfe Research | Buy | 706.00 | Maintained |
Joseph Bonner | Argus Research | Buy | 570.00 | Maintained |
Kannan Venkateshwar | Barclays | Hold | 425.00 | Downgraded |
Maria Ripps | Canaccord Genuity | Buy | 600.00 | Maintained |
Mark Mahaney | Evercore ISI | Hold | 525.00 | Downgraded |
Mark Zgutowicz | Rosenblatt Securities | Hold | 400.00 | Reiterated |
Matthew Thornton | Truist Financial | Hold | 470.00 | Downgraded |
Michael Morris | Guggenheim | Buy | 555.00 | Maintained |
Michael Nathanson | MoffettNathanson | Hold | 460.00 | Maintained |
Michael Pachter | Wedbush | Sell | 342.00 | Reiterated |
Nat Schindler | Bank of America Securities | Buy | 750.00 | Maintained |
Scott Devitt | Stifel Nicolaus | Buy | 500.00 | Maintained |
Steven Cahall | Wells Fargo | Buy | 600.00 | Reiterated |
Thomas Champion | Piper Sandler | Buy | 562.00 | Maintained |
Todd Juenger | Bernstein | Buy | 617.00 | Maintained |
Unknown Analyst | CFRA | Buy | 525.00 | Maintained |
Unknown Analyst | KGI Securities | Hold | 605.00 | Initiated Coverage |
William Power | Robert W. Baird | Hold | 420.00 | Downgraded |

Analysts’ targets range significantly from $340 to $780, with an overall average of £540.50. Most analysts have a buy or hold consensus, with a maintained or reiterated action. However, 18% of analysts have downgraded their views.
Analysts’ Consensus – Is Netflix a Buy?

Analysts’ Recent Actions for Netflix Stock


Netflix Comparable Analysis

Comparisons are made with companies in the streaming business.
Caution should be taken as some companies have business segments in other sectors that differ significantly from the streaming business.
Netflix Margin vs Competitors

Netflix is slightly above the average for gross margin and net margin and slightly below the EBITDA margin.
Netflix Liquidity vs Competitors

Netflix is lower than the average, with Roku having a particularly strong cash balance.
Netflix Solvency vs Competitors

Netflix has a below-average total debt to EBITDA but above average net debt to EBITDA. However, Roku skews the average with negative net debt due to its strong cash balance.
Netflix Returns vs Competitors

Netflix has slightly above-average returns. Apple has a significantly strong ROE
Netflix Dividend Yield vs Competitors

Netflix Dividend Payout Ratio vs Competitors

Netflix does not pay a dividend. Only Apple and Comcast currently pay a dividend. Others are either in growth mode or have suspended dividends to strengthen the balance sheet due to financial impacts from coronavirus.
Netflix PE – Price to Earnings vs Competitors

Netflix has a slightly lower P/E and forecast P/E than the average at 34.2 and 34.6. Roku, Disney and Amazon are considerably higher, and Discovery, Comcast and ITV are much lower.
Netflix Price to Sales vs Competitors

Netflix has a higher than average price to sales multiple. However, only Roku and Apple are higher.
Netflix Price to Free Cash Flow vs Competitors

Due to Netflix having negative cash flow in 2021, the price to FCF shows a comprehensively negative multiple. Although there is a positive FCF forecast for next year, the forecasted price to FCF is still much higher than the competitors.
Netflix EV/EBITDA vs Competitors

Roku and Disney have a much higher EV/EBITDA multiple than the others, impacting the average. On the other hand, Netflix, Amazon and Apple all have very similar EV/EBITDA multiples, with the others lower.
Is Netflix Good Value? – Comparable Valuation Multiples
Matric | Comps | EV | Net Debt | Equity Value | Shares | Share Price |
---|---|---|---|---|---|---|
EV/Revenue | 4.7 | 213,365 | 8,665 | 204,699 | 443 | 462.08 |
EV/EBITDA | 17.3 | 202,391 | 8,665 | 193,726 | 443 | 437.30 |
P/E | 36.0 | 285,349 | 8,665 | 276,684 | 443 | 624.57 |
P/FCF | 24.6 | 232,316 | 8,665 | 223,651 | 443 | 504.85 |

Using the comp averages, the valuations range from $437.30 to $624.57.
When creating the averages, certain outliers were removed as they significantly skewed the numbers.
Netflix DCF – EBITDA Exit – Valuation & IRR
Netflix DCF Assumptions
Tax Rate | 15.0% |
Discount Rate | 10.3% |
Perpetual Growth Rate | 2.0% |
EV/EBITDA Multiple | 12.0x |
Transaction Date | 27/01/2022 |
Fiscal Year-End | 31/12/2022 |
Current Price | 381.43 |
Shares Outstanding | 443 |
Debt | 14,693 |
Cash | 6,028 |
Capex | 525 |
Netflix Cash Flow Forecast

To calculate unlevered free cash flow (FCFf), only depreciation and amortisation of PP&E (including intangibles) have been added back to EBITDA. The amortisation of content assets has not been added back due to exaggerating cash flows.
Netflix Terminal Value – EBITDA Exit
Final Forecast EBITDA | 11,632 |
EV/EBITDA Multiple | 12x |
TERMINAL VALUE | 139,580 |
Netflix Intrinsic Value – EBITDA Exit
Enterprise Value | 113,441 |
Plus: Cash | 6,028 |
Less: Debt | 14,693 |
Equity Value | 104,776 |
EQUITY VALUE / SHARE | 236.51 |
Netflix Market Value vs Intrinsic Value – EBITDA Exit

Based on the model assumptions using the EBITDA Exit Multiple, the intrinsic value is $237, which is $145 lower than the current market value (at the time of analysis).
Market Value | 381.43 |
Upside | -144.92 |
Intrinsic Value | 236.51 |
Netflix Investment – Internal Rate of Return (IRR)
Target Price Upside | -38% |
Internal Rate of Return (IRR) | -1% |
Netflix Internal Rate of Return (IRR) vs Purchase Price

Netflix DCF – EBITDA Exit – Sensitivity Analysis
Variables’ Influence on Model

Changes to the cost of sales have the most significant impact on this model by a considerable margin. Next, changes to the EV/EBITDA multiple have the most impact, followed by the discount rate (WACC) and revenue.
The intrinsic value calculated from the model uses the assumptions: EBITDA Exit Multiple of 13x, WACC of 10.3% and final forecast EBITDA of $11,632. The tables to the right show the intrinsic value based on different assumption scenarios.
Impact on Intrinsic Value Price Per Share

Bear Case Price = $195
Uplift vs Market Value = -49%
Bull Case Price = $281
Uplift vs Market Value = -26.3%

Bear Case Price = $209
Uplift vs Market Value = -45%
Bull Case Price = $268
Uplift vs Market Value = -30%

Netflix DCF – Perpetual Growth Rate – Valuation & IRR
Netflix Assumptions
Tax Rate | 15.0% |
Discount Rate | 10.3% |
Perpetual Growth Rate | 2.0% |
EV/EBITDA Multiple | 12.0x |
Transaction Date | 27/01/2022 |
Fiscal Year-End | 31/12/2022 |
Current Price | 381.43 |
Shares Outstanding | 443 |
Debt | 14,693 |
Cash | 6,028 |
Capex | 525 |
Netflix Cash Flow Forecast

To calculate unlevered free cash flow (FCFf), only depreciation and amortisation of PP&E (including intangibles) have been added back to EBITDA. The amortisation of content assets has not been added back due to exaggerating cash flows.
Netflix Terminal Value – Perpetual Growth
Final Forecast FCFf | 9,084 |
Perpetual Growth Rate | 2.0% |
TERMINAL VALUE | 111,269 |
Netflix Intrinsic Value – Perpetual Growth
Enterprise Value | 95,576 |
Plus: Cash | 6,028 |
Less: Debt | 14,693 |
Equity Value | 86,911 |
EQUITY VALUE / SHARE | 196.19 |
Netflix Market Value vs Intrinsic Value – Perpetual Growth

Based on the model assumptions using the perpetual growth rate, the intrinsic value is $196, which is $185 lower than the current market value (at the time of analysis).
Market Value | 381.43 |
Upside | -185.24 |
Intrinsic Value | 196.19 |
Netflix Investment – Internal Rate of Return (IRR)
Target Price Upside | -49% |
Internal Rate of Return (IRR) | -5% |
Netflix Internal Rate of Return (IRR) vs Purchase Price

Based on the model assumptions and the current market share price of $381.43, there is an internal rate of return of -5%. If the stock price dropped 20% to $305, the IRR would still only be 0.2%.
Netflix DCF – Perpetual Growth Rate – Sensitivity Analysis
Variables’ Influence on Model

Changes to the cost of sales have the most significant impact on this model, followed by changes to the discount rate (WACC) and then FCF and revenue.
The perpetual growth rate shows less of an impact. However, this chart is based on relative % movements. Therefore, the perpetual growth rate could vary on a much larger scale than the other variables. For example, a change from 2% to 3% is a 50% increase, which you are less likely to see for the other variables.
The model assumptions show a Perpetual Growth Rate of 2%, WACC of 10.3% and a final forecast FCFf of $9,084. The tables to the right show the intrinsic value based on different assumption scenarios.
Impact on Intrinsic Value Per Share

Bear Case Price = $178
Uplift vs Market Value = -53%
Bull Case Price = $244
Uplift vs Market Value = -36%

Bear Case Price = $146
Uplift vs Market Value = 62%
Bull Case Price = $281
Uplift vs Market Value = 26%
Netflix Valuation Summary
Netflix Value Valuation Football Field Chart

Is Netflix a good investment?
The historical trading range, analysts’ forecasts, and comparable valuations show that the recent pullback potentially provides a good entry point with a good upside.
However, the DCF models highlight the intrinsic value is significantly below the current market value. Therefore, a poor investment opportunity if you are looking for value.
The high cost of creating content substantially impacts the cash flows, which is not apparent when simply looking at the income statement. This is due to the way Netflix amortise their content spend.
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Disclosure
I/we have no current positions in Netflix and do not intend to open any new positions in Netflix in the coming weeks.
This analysis has been written by a Bull Headed Bear analyst/author for Bull-Headed-Bear.com. I/we receive no compensation for this post other than any payments received from ads or affiliate links.
[…] In January 2022, I shared a complete analysis of Netflix following the 2021 annual results – You can see this analysis here. […]