Netflix, Inc. NFLX

Key data

The business

Netflix sells one thing, a monthly streaming subscription, to a few hundred million households in almost every country. It now collects that money three ways: the subscription itself across cheap-to-premium tiers, a newer advertising tier, and an extra fee for the paid sharing it used to give away free. The product the customer touches is the app and the queue of shows, and the reason they stay is that Netflix spends more on original and licensed content than any rival and knows better than anyone which shows get finished. The moat is that scale: no rival funds a global slate and spreads it across as many paying homes, which lets Netflix outspend on hits while margins still rise. The real cost lives inside that content, amortized over years, which is why a light property line, under 2% of revenue, badly understates what this business invests.

The numbers

Revenue climbs steadily and profit climbs faster. The last five reported quarters:

Q2 2026 revenue rose 13.4% over the year before, in line with a Street looking for low-teens growth. The Q1 2026 net income spike is not the trend: it carried a one-time contract-termination gain of about $2.8B, which is why diluted EPS reads $1.23 that quarter against an $0.80 run rate. Strip it and earnings grew mid-single digits, not double, that quarter. Pre-split figures make Q3 2025 look like $5.87; restated it is $0.59.

The five-year record, EPS restated post-split for comparability:

Revenue compounded about 11% a year since 2021; net income compounded about 21%. The extra came from operating margin, 20.6% in 2023, 29.5% in 2025, 33.4% last quarter, and a share count the buyback keeps shrinking. Street models pencil the same engine: revenue near $63B and EPS about $4.58 by 2028, roughly 22% a year on earnings. That is the crux. The market has priced saturation into a decade-low multiple, but margin expansion plus buyback keeps earnings compounding near 20% even if revenue growth halves. The one print that settles the argument is operating margin: hold above 30% and the derate is a gift, roll back toward the mid-20s and the bears are right.

The cash tells you it is real, and shows where it goes:

Management

Co-CEOs Sarandos and Peters run it, and insiders were sellers, not buyers: $15.8M sold across nine sales in twelve months, none bought, plan status not disclosed on the Form 4s. The sizes are routine against their pay. Capital allocation is the tell worth weighing. Netflix spent $9.1B on buybacks in 2025, much of it near the highs above $100, poor timing; but $6.0B in the first half of 2026, including $4.7B in Q2 as the stock fell into the $70s, is better use of the same tool. On guidance, EPS beat in three of the last four quarters and missed once, Q3 2025, when $0.59 landed short of about $0.70 expected.

How it fails or surprises you

Content-cost reacceleration. The 33% operating margin did the heavy lifting on earnings, up from 21% in 2023. If rivals bid up the same shows, sports and talent, that margin stalls. Watch it quarter to quarter: a slip toward the mid-20s turns a 21%-a-year compounder into a low-teens one, and the cheap multiple stops being cheap.

Saturation you can't see. Netflix no longer reports members or revenue per member, so 13% growth could be price hikes on a saturating base rather than new homes. One quarter on from the same worry, the disclosure still has not returned. If a price increase triggers cancellations, the first visible sign is a revenue-growth stall, and you would learn it late.

Advertising scaling (right tail). The ad tier and live events are not broken out and barely sit in Street models. If advertising compounds toward a multi-billion line while margins keep climbing, EPS beats the $4.58 penciled for 2028 just as a decade-low multiple re-rates. First sign: operating margin pushing past 35% with revenue growth still double digits.

Closing thoughts

The shape turns on one number: operating margin. If it holds above 30%, the market has mispriced a quality compounder derated nearly in half while its earnings engine still runs near 20% a year. If it rolls back toward the mid-20s, content costs are reaccelerating and saturation is real. The fatter tail is up, because the multiple is already at the bottom of its twelve-year range and below rivals near 14 times cash earnings, while the margin trend is still climbing. The left tail is genuine: content-cost inflation against a base you can no longer size directly, and if it breaks the whole thesis breaks with it.

The bet is still that households worldwide keep paying Netflix every month and paying a bit more each year. It breaks if operating margin rolls back toward the mid-20s or revenue growth stalls below double digits, and those two numbers, watched together each quarter, tell you first, before any subscriber count they no longer show would.