Netflix (NFLX): 43% ROE, $9.5B free cash flow, and 23x earnings as revenue growth slows to 11.5%

Netflix sells a subscription to a library of films, series and live events, and increasingly sells advertising inside that library. In 2025, streaming subscriptions produced all $45.18 billion of its revenue. 1

The company clears this channel's three gates on the year ended December 31, 2025. Reported return on equity was 42.76%, above 15% in each of the last five years. Free cash flow reached $9.46 billion, positive in every year of the three-year window and 37% higher than 2024. All four multiples sit below their own five-year medians. 2

The shares closed at $65.85 on Friday, October 23, 2026, 43.6% below their 52-week high of $116.73. 3 The market value is $270.40 billion and the enterprise value $279.71 billion. 4

The trailing multiple reads 19.06 times earnings. 4 That trailing year includes a $2.8 billion termination fee that Paramount Skydance paid Netflix in February 2026. 5 Strip the fee out and the same share price is 22.6 times what the operating business earned.

The gap between those two multiples comes down to two numbers: growth and advertising. Revenue growth has slowed for four straight quarters, and the advertising business will finish about 10% below its own target for the year. 6 The open question is whether the market has repriced a maturing business or overpriced a slowdown.

The price snapshot is the October 23, 2026 close of $65.85, a market value of $270.40 billion and an enterprise value of $279.71 billion on 4.11 billion shares. 4 The shares sit 2.7% above their 52-week low of $64.10. 3 Short interest is 2.00% of the shares outstanding. 4

Netflix reports on the calendar year, so the three most recent completed fiscal years are 2023, 2024 and 2025. 1 The latest reported period is the quarter ended September 30, 2026, published on October 20, 2026. 6

Return on equity is net income divided by average shareholders' equity for the year. A second row gives the same ratio on year-end equity, because a company buying back stock shrinks its equity base and lifts the average-equity version. 2

Free cash flow is net cash provided by operating activities less purchases of property and equipment, the two lines in the audited cash-flow statement. 7

The four multiples are P/E on trailing diluted earnings per share, P/B on book value per share, P/FCF as market capitalisation divided by free cash flow, and EV/EBITDA as published. The historical range is the value recorded at each December 31 from 2021 to 2025. 2 Free cash flow was negative in 2021, so that year carries no P/FCF value and the median rests on four year-ends.

The termination fee has to be separated from the operating numbers. Warner Bros. Discovery ended its merger agreement with Netflix on February 27, 2026, in order to sign with Paramount Skydance. 5 Paramount, acting for Warner, paid Netflix the $2.8 billion break fee the agreement provided for. Netflix recorded the money in "interest and other income", below operating income, in the first quarter. 5

The fee therefore sits inside net income, diluted earnings per share and operating cash flow, and outside EBITDA. Every adjusted figure below removes it from earnings and from cash flow, and leaves EBITDA-based measures alone.

The peer set is Walt Disney, Comcast, Warner Bros. Discovery, Paramount Skydance and Spotify. 89101112 The annual report describes Netflix's competition without naming companies, listing linear television, other streaming services, user-generated platforms, gaming, social media and piracy. 1 Those five are the listed companies selling filmed entertainment by subscription or advertising at comparable scale, plus the one other global subscription platform.

This week's search ran against the Securities and Exchange Commission's XBRL frames interface, which publishes every reported value of one accounting tag for one period across all filers. Pulling net income, shareholders' equity, operating cash flow and capital expenditures for 2023, 2024 and 2025 returned 2,860 companies carrying all four items across those years. 13141516

Of those 2,860, the screen left 95. Each cleared a 15% return-on-equity floor in every year, kept free cash flow positive in every year, and reported at least $300 million of revenue in 2025. The valuation test was applied to the 59 of them with at least $1 billion of revenue that this channel has not already published. Fifteen of those sat below their own median on all four multiples. Ten also held return on equity above 18% in every year and free cash flow at or above its 2023 level. Netflix is one of the ten.

The route reaches SEC filers that tagged those four items inside the annual frames, so an issuer on a fiscal calendar outside the calendar year enters on an approximate match. Netflix files on the calendar year, which puts its screen years and its fiscal years on the same dates. 1

The gate covers fiscal 2023 through 2025, and the two earlier rows show a five-year band that never fell below 24%.

The ratio rose because profit grew faster than the equity that produced it. Net income went from $5.41 billion in 2023 to $10.98 billion in 2025, while shareholders' equity went from $20.59 billion to $26.62 billion. 1

Buybacks work against the growth in equity, and the company has run them hard. Treasury stock stood at $22.37 billion at cost at the end of 2025, and at $33.23 billion at September 30, 2026. 15 Equity still grew, because retained earnings grew by more.

The trailing twelve months print a higher number than any of those years, and part of it is the fee. On net income of $14.77 billion and average equity of $27.95 billion, trailing return on equity is 52.8%. Remove the $2.8 billion fee, taxed at roughly the 17% rate the nine-month accounts carry, and the same calculation gives 44.5%. 45

Both versions clear 15% by a wide margin, and the gate rests on the three audited years.

The first three rows come from the audited statement. 1

Free cash flow was flat between 2023 and 2024, then rose by a third in 2025 as operating cash flow grew 38%. Capital expenditure is small for a company of this size, at 1.5% of revenue in 2025, because the expensive asset here is programming rather than plant.

The 2026 picture turns on the fee. The nine-month accounts show $9.50 billion of free cash flow, a figure that includes the $2.8 billion cash receipt. 5 Cash spending on content rose 24% to $14.93 billion, while content amortisation rose 9.5% to $12.76 billion. The gap between those two lines is why operating free cash flow fell 11.7% to $6.70 billion.

The company's own forecast for 2026 is about $12.0 billion of free cash flow. 6 Remove the fee and the operating figure is about $9.2 billion, a little below 2025's $9.46 billion. The gate passes on either basis. What the adjustment shows is that 2026 is the first year since 2022 in which cash generation stops growing.

All four sit below their own five-year medians. Two of them, P/E and EV/EBITDA, sit below the entire five-year range; P/B and P/FCF are inside it, near the low end. The narrowest margin is P/FCF at 35%, which is also the measure most affected by the 2026 content spending.

The adjusted P/E uses trailing diluted earnings of $3.45 less $0.54 for the fee, or $2.91. 45 On the company's own forecast, which implies $3.57 of diluted earnings for 2026, the same price is 18.4 times. 6

The historical test is one boundary. The peer table applies a second, at the same October 23 close.

Netflix is second cheapest of the four companies with a trailing P/E, behind Comcast. On P/FCF it is third of six, a shade above Disney and below Spotify, Warner and Paramount. On EV/EBITDA it is the second most expensive in the group, behind Spotify.

The two rankings differ because the peers' EBITDA runs far above their earnings. Disney's $235.14 billion enterprise value is 11.22 times EBITDA, about $21.0 billion against $8.60 billion of net income. 8 Netflix's EBITDA of $15.96 billion is 1.3 times its earnings once the fee comes out. 4 A dollar of Netflix profit is priced at close to the multiple of a dollar of its EBITDA. For Disney the same enterprise value divides by an EBITDA figure more than twice its profit, so the EBITDA multiple comes out low.

The group is also not a quality-matched set. Disney reports 8.01% return on equity and Comcast 11.43%, both below the 15% floor this channel screens on, while Spotify reports 35.81%. 8912

The gate as this channel defines it is a discount to a company's own five-year medians on all four multiples, and Netflix clears it by 35% to 42%. The peer comparison is the weaker half of the case: Netflix is priced below Disney on earnings and above it on EBITDA, and Comcast is cheaper on every column in the table.

A Netflix membership buys access to a catalogue the company either licenses or produces. An advertising-supported plan sits alongside ad-free plans in most markets, and that tier opens a second revenue line on the same content. 6

Content is capitalised and then amortised against revenue, over a contractual window, an estimated period of use, or ten years at most. More than 90% of a title's cost is written off within four years of release. 1 That accounting choice is why the balance sheet carries $34.61 billion of content assets against $29.29 billion of equity. 5

Revenue splits across four regions. In the September 2026 quarter the United States and Canada produced $5,628 million, Europe, the Middle East and Africa $4,107 million, Latin America $1,603 million and Asia-Pacific $1,537 million. 6

The company employed about 16,000 people at December 31, 2025, 68% of them in the United States and Canada. 1 In October 2026 it cut roughly 1,000 roles, about 6% of the workforce, mostly in product, technology, legal and human resources. 17

The competition is broad in the annual report's own telling: linear television, other streaming services, video games, open platforms carrying user-generated content, social media, and piracy. 1 Two named pressures sit behind the share price. CNBC names YouTube as Netflix's biggest competitive threat. Paramount's acquisition of Warner Bros. Discovery will put Paramount+ and HBO Max under one owner. 17

Three years of margin expansion took operating margin from 20.6% to 29.5%, and net income doubled. 18

The quarterly numbers show that run flattening.

Revenue growth has fallen in each of the last four quarters. 6

The margin line needs its own reading. The September quarter's 34.6% was the highest in the series, and the company attributed part of it to the timing of expenses. 6 The December guide of 26.0% is below the quarter just reported and above last year's 24.5%. It also carries about 120 basis points of cost from the October job cuts.

For the full year the company expects revenue of $51.1 billion, up 13%, and an operating margin of 31.5% against 29.5% in 2025. 6 That margin implies operating income of about $16.1 billion, roughly a fifth more than last year.

The first quarter of 2026 carries the distortion. Net income of $5,283 million includes the $2.8 billion fee, which is worth about $2.32 billion after tax. Remove it and the quarter earned roughly $2.97 billion, close to the $3.40 billion and $3.66 billion of the two quarters that followed. 5

The four regions grew at different rates in the September quarter.

The two largest regions are growing at about the group rate, and the smaller two faster. A price increase took effect across plans in March 2026, and the company says the response has matched prior increases, with churn improving year over year in every region. 619

At September 30, 2026 Netflix held $8.22 billion of cash and short-term investments against $15.13 billion of senior notes and $2.25 billion of lease liabilities. 5 Net debt was $9.31 billion, or about 1.1 times trailing EBITDA. 20

Interest expense was $622.5 million over the nine months, and interest coverage on trailing operating income is 18.2 times. 45 The company issued $1.0 billion of new notes in the September quarter to fund a $1.0 billion maturity falling in the December quarter. 6 A further $2.48 billion of the notes are classified as current. 5

Content assets of $34.61 billion are the largest item on the balance sheet, ahead of property and equipment at $2.56 billion. 5 The company targets a ratio of cash content spend to content amortisation of about 1.1 times for the year. 6 The nine months ran at 1.17 times.

Share repurchase is the whole of the capital return, since the company pays no dividend. 1 Netflix bought back $6.05 billion of stock in 2023, $6.27 billion in 2024 and $9.17 billion in 2025. 7

The 2026 pace is higher. Repurchases reached $10.78 billion in the first nine months, of which $4.80 billion came in the September quarter alone, when the company bought 63.9 million shares. 5 That quarter's average price was about $75 a share, 14% above Friday's close. About $22.3 billion remains on the authorisation. 6

At the September quarter's pace the remaining authorisation lasts under five quarters. Each dollar also buys more shares at $65.85 than at the prices the company paid through most of 2025.

Growth is decelerating. Revenue growth has fallen for four straight quarters, to a guided 11.5% for the December quarter. 6 The full-year figure of $51.1 billion sits at the bottom of the $51.0 billion to $51.4 billion range the company gave in July, and below the $51.2 billion analysts had modelled. 19

Advertising is behind plan. Netflix now expects about $2.7 billion of advertising revenue in 2026, against roughly $3 billion it had forecast. 6 The shortfall is $300 million, or 10%, and the company blames a slower rollout of some advertising products. Co-CEO Greg Peters told analysts that the build-out had been the fastest of any comparable ad stack in the industry. He added that "we are currently a bit behind our aggressive target for the year". 19

Advertising is about 5% of revenue at $2.7 billion, so the miss costs roughly 0.6% of the 2026 total. Its weight sits in what it was meant to be: the fastest-growing line, and the one that lets a subscription business earn twice from the same hour of viewing.

Engagement and the organisation around it. The shareholder letter addresses the point directly. "We know there's some investor concern about our view hours growth," it says, before arguing that engagement measured across quantity, quality and variety remains healthy. 6 The company's own report puts first-half viewing at more than 97 billion hours, its highest for any half. 21

The organisation has moved with the numbers. Chief content officer Bela Bajaria left the role in October, and Peter Rice joined from Disney to replace her. 19 The same month the company cut about 1,000 jobs. 17 Co-CEO Ted Sarandos said in October that the company was "not growing as fast as I want". 17

Revenue growth. The December quarter is guided at $13.44 billion. A print below that, or 2027 guidance under 10% growth, would extend the deceleration into a third year. 6

Advertising. This year's plan fell from $3 billion to $2.7 billion. A 2027 target below $3.2 billion would mean the reset did not restore the original trajectory.

Margin. Full-year 2026 operating margin is guided at 31.5%. Guidance below that for 2027 would mean the savings from 1,000 job cuts are being spent rather than banked.

Free cash flow. The 2026 figure of about $12.0 billion contains the $2.8 billion fee. A 2027 forecast below $12.0 billion would leave operating cash generation below its 2025 level for a second year.

Content spending. Cash content spend ran at 1.17 times amortisation in the first nine months, against a 1.1 times target. A full-year ratio above 1.2 times would mean the library is being refreshed faster than it is being consumed. 5

Buyback pace. $22.3 billion remains, against $4.8 billion spent in the September quarter. A decision to slow repurchases while the shares trade below $70 would remove the largest buyer of the stock. 6

Debt. $2.48 billion of notes are current, and interest expense ran at $622.5 million for nine months. 5 Refinancing at higher rates would lift a cost that has been falling as a share of revenue.

Competition and consolidation. The Paramount and Warner Bros. Discovery combination would put Paramount+ and HBO Max under one owner with a single content budget. 17 Any quarter in which the merged service reports subscriber gains at Netflix's expense would test the engagement argument.

Price increases. The March 2026 increase has held so far. The company stopped reporting membership numbers in 2025, so the next evidence arrives through revenue per region and any commentary on churn. 1

Fourth-quarter results are due in late January 2027. The company reported the equivalent release on January 20, 2026. 6 That release carries the first 2027 guidance and the first full quarter under the new content chief. It also settles whether the advertising reset holds.

The December slate is the company's largest live quarter to date. It includes an NFL game on Thanksgiving Eve with a U2 halftime show, an NFL doubleheader on Christmas Day, and the Tyson Fury against Anthony Joshua fight. 6 Live sport is the part of the schedule that advertising can be sold against.

The advertising tier enters 15 new countries in 2027. The first tranche in March covers nine markets in Europe, the Middle East and Africa, plus Colombia, Peru and New Zealand. 6 Those launches are the mechanism by which the $2.7 billion base is meant to grow.

The remaining $22.3 billion of buyback authorisation is the fourth lever. At $65.85 each billion retires 15.2 million shares, or 0.37% of the count. 6

All three gates clear. Return on equity sat above 24% in each of the last five years and reached 42.8% in 2025. Free cash flow has been positive throughout and reached $9.46 billion last year. All four multiples sit below their own five-year medians, and two sit below the entire five-year range.

Two things the gates leave open. The first is whether the multiple is low because the growth rate fell, or low in spite of it. At 22.6 times operating earnings and 18.4 times the company's own 2026 forecast, Netflix is priced closer to a mature media company than to the compounder it was until last year. The second is cash. The 2026 free cash flow figure looks like growth only because of a break-up fee, and the underlying number fell.

The January release answers the first question with 2027 guidance and the second with a 2027 cash forecast.