Morningstar

Netflix’s Business Is Nearly Flawless, but Growth Should Slow Materially in 2026

Streaming giant’s stellar results had areas of softness; currency tailwinds drive guidance raise.

The Netflix logo can be seen on a building belonging to the video streaming provider.
Andrej Sokolow/picture alliance via Getty
Securities in This Article
Netflix Inc
(NFLX)

Key Morningstar Metrics for Netflix

What We Thought of Netflix’s Earnings

Netflix NFLX again posted fantastic results, with second-quarter sales up 16% year over year and the operating margin increasing by 7 percentage points, to 34%. However, sales would have missed guidance if not for a currency tailwind, and lower content expenses, which won’t persist, drove profits.

Why it matters: Robust sales growth is virtually certain throughout 2025. Netflix raised prices in several major markets, including the US, early in the year, and the firm is fully realizing revenue from last year’s boom in member growth, particularly in the back half. Durability is the question.

  • Second-quarter sales in the US and Canada, or UCAN, grew 16% year over year, but considering the price increases, we think the number of members has been roughly flat at best through the first half. Subscription prices in UCAN rose 10%-16% in January, depending on the plan tier.
  • If Netflix added no new UCAN members in the first half, average revenue per member would’ve been up 7% in the second quarter and slightly down in the first, plausible when factoring in plan mix and discounts. This portends poorly for 2026, after Netflix laps the price hikes.

The bottom line: We keep our $750 fair value estimate and narrow moat. We believe Netflix remains best-in-class, but we expect the rapid growth to decelerate substantially in 2026. As such, we think the stock is far too expensive, trading at 40 times FactSet consensus 2026 earnings.

  • We see room for long-term margin expansion, but the level this quarter was deceiving. Second-quarter cash content spending, which largely flows to the income statement, was down 8% year over year. This was simply a timing issue. Spending would pick up significantly in the second half.
  • Full-year operating margin guidance is now 30%, implying a 27% margin for the second half. The 1-percentage-point increase in full-year margin guidance was driven mostly by more favorable currency exchange rates, the same driver for an increase in full-year revenue guidance.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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