After Earnings, Is Netflix Stock a Buy, a Sell, or Fairly Valued?

Netflix released its second-quarter earnings report on July 16. Here’s Morningstar’s take on Netflix’s earnings and stock.

Key Morningstar Metrics for Netflix

• Fair Value Estimate
  : $80.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Netflix’s Q2 Earnings

Netflix’s results were good, with sales (up 13% year over year) and operating profit (up 11%) meeting its guidance. The firm maintained its full-year outlook. Netflix also released its first-half 2026 engagement report but said it will release these reports annually beginning in 2027.

Why it matters: Netflix stopped releasing subscriber metrics last year, just as we anticipated subscriber additions would begin to wane. Now, after repeatedly highlighting the importance of engagement, the firm characterized engagement as nuanced and will offer less transparency.

• The prevailing narrative is that Netflix’s business is deteriorating. Management’s decision to pull back on its engagement report should only encourage this thinking. We believe this was the biggest reason for the high-single-digit stock decline after hours on earnings day.

Key stats: Year-over-year sales growth was in the double digits across all regions during the quarter, ranging from 10% in the US to 17% in Latin America and Europe, the Middle East, and Africa.

• We expect sales growth to slow further in the coming years, but the ongoing opportunity for international subscriber additions and expanding advertising revenue should keep sales growth from falling below the mid-single digits, even in down years.
• The operating margin contracted by 70 basis points year over year, but the recognition of content costs is more heavily weighted to the first half this year. Margins are still expected to expand by 2 percentage points in 2026.

The bottom line for Netflix Stock: We maintain our $80 fair value estimate. The market has seemingly signed on to our view that Netflix will have difficulty maintaining double-digit sales growth in the long term—which the firm expects—and it has overcorrected, in our opinion.

• The stock is reasonably valued for its cash generation and growth. It is now trading below 20 times expected 2026 earnings, and we expect profits to continue growing at a faster pace than revenue each year

The following are excerpts from Morningstar’s company report on Netflix.

Fair Value Estimate for Netflix

With its 3-star rating, we believe Netflix’s stock is fairly valued compared with our long-term fair value estimate of $80 per share, which implies a P/E multiple of 22 and an EV/EBITDA multiple of 19 times our 2026 projections. We project a compound annual revenue growth rate of about 10% through 2030, followed by mid-single-digit growth for the past five years of our 10-year forecast. We expect international markets to lead this growth, given the opportunities to attract new subscribers, as Netflix continues to create more country-specific content.

We project average revenue growth in Europe, Middle East, Africa, and Latin America of about 10% annually through 2030 and 8% through 2035, while we project APAC to be the fastest-growing region, averaging more than 16% through 2030 and 11% through 2035. We project almost $20 billion in spending in 2026 and mid- to high-single-digit growth each year thereafter. Content amortization, which is the figure reflected in the income statement, should grow at a similar rate. However, we believe there will be operating leverage on this spending and other costs, resulting in operating margins rising from 32% in 2025 to 36%-37% by the end of the decade. With sales growing faster than content spending and other costs, we expect free cash flow to grow from $9.5 billion in 2025 to almost $20 billion by 2030.

Read more about Netflix’s fair value estimate.

Economic Moat Rating

We assign Netflix a narrow moat rating based on intangible assets. Netflix has two advantages that set it apart from streaming video peers. First, it has no legacy assets that are losing value as society transitions to new ways of consuming video entertainment at home, allowing it to put its full effort behind its core streaming offering. Second, it was the pioneer in its industry, giving it a big head start in acquiring subscribers and overcoming the huge initial cash burn required to build a successful streaming service. This subscriber base was critical in creating a virtuous cycle for Netflix that we doubt can be attained by more than a small number of competitors. The increased profits go towards content spending, allowing Netflix to attract premier talent and take many shots at creating hits. This is the virtuous cycle.

Read more about Netflix’s economic moat.

Financial Strength

Netflix is in good financial shape. It ended June 2026 with a net debt/EBITDA ratio of 0.4, with the firm holding $9.1 billion in cash and $14.3 billion in total debt. More importantly, the years of cash burn are long behind Netflix, giving the firm a good cash cushion after funding its content budget. Even after investing nearly $20 billion in content, we expect $11 billion in free cash flow in 2026 (adjusted down for the Warner Bros. termination fee windfall), with growth each year thereafter throughout our forecast. Netflix has repurchased over $25 billion in shares since 2023, with the buyback accelerating after the Warner Bros. acquisition fell through.

We now think Netflix is open to major acquisitions, and it has ample financial flexibility to do so. Until then, we expect the share repurchases to continue, as cash is piling up and it has few alternative uses. With the firm trading at historically low valuations, we think this is an excellent use of the excess cash. With management looking for ways to accelerate growth, we don’t expect the firm to pay a dividend in the near future, but we think it should.

Read more about Netflix’s financial strength.

Risk and Uncertainty

Our Uncertainty Rating for Netflix is High. Our rating is largely based upon the evolving streaming media landscape and the growing competition Netflix faces, including from free streaming platforms. Although Netflix was the first mover in the streaming industry, the landscape now consists of every major media company promoting its own stand-alone streaming service.

Also, with Netflix more focused on profitability and cash generation in recent years, subscription prices have risen substantially, and it may risk losing subscribers to other streaming options. Additionally, competitors may bundle their services—with or without Netflix—or offer them as add-ons for pay TV subscribers who receive their linear channels, a foothold Netflix doesn’t currently have.

Other uncertainty factors include the nascent ad-supported service, which requires the firm to successfully build an advertising business that makes up for the lower price these subscribers pay, and Netflix’s flirtation with major live sports and the potential for more regular-season games, which may promote customer stickiness but typically come at a very high price.

Read more about Netflix’s risk and uncertainty.

NFLX Bulls Say

• Netflix has already attracted a massive customer base and profitability. This advantage versus competitors makes it more likely a virtuous cycle can continue, with Netflix securing more content that attracts and holds more subscribers.
• Advertising-supported subscriptions open Netflix to a wider pool of subscribers and a major new source of revenue.
• Netflix has significant room to grow in international markets where it has already shown promise with local content.

NFLX Bears Say

• Netflix faces competition that it has not had to deal with in the past. As consumers have more options for quality streaming services, it’s more likely that Netflix could get cut out of some consumer budgets.
• Netflix’s US business is mature, with very high penetration of total households, meaning price increases may need to be a bigger component of future growth.
• Netflix will need to spend more on content—through sports rights and local international investment—to increase membership and prices at rates it has historically, when it worked from a lower base and with less competition.

This article was compiled by Irza Waraich.