Netflix, Inc.NFLXNASDAQ

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $114.78 per share(market-calibrated)

+16.3%

Upside to Fair Value

Current

$98.70

Pure Model

$114.26

Fair Value

$114.78

Bull Case

$150.64

Bear Case

$83.02

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

4.29%

Calibrated Growth

3.19%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $114.26.

What's Driving This Ratingfor NFLX

✓

CapEx already efficient

CapEx at 1.07% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 23.80% — below the sector mature average of 29.49%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $22.7B (23.80% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 13.24% revenue growth in Year 1, fading to 8.53% by Year 5 and 3.00% by Year 10. Revenue reaches $95.2B by Year 10 (vs $45.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $90.76/share (11.5x terminal FCF) while exit multiple gives $137.76/share (24.0x terminal FCF). The 22x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $98.70, the market implies 4.29% perpetual growth — 129bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 91.82% indicates efficient cash generation. FCF reaches $49.4B by Year 10 (51.83% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.71

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.21%

Cost of Debt

Pre-tax Cost of Debt5.14%

Tax Rate13.69%

After-tax Cost of Debt4.43%

Equity Weight (E/V)96.65%

Debt Weight (D/V)3.35%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (96.65% × 12.21%) + (3.35% × 4.43%)

= 11.95%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$51.2B	$62.8B	$73.9B	$84.4B	$95.2B
EBIT	$12.2B	$15.0B	$17.6B	$20.1B	$22.7B
Tax	$1.7B	$2.0B	$2.4B	$2.8B	$3.1B
NOPAT	$10.5B	$12.9B	$15.2B	$17.3B	$19.6B
+ Depreciation	$16.7B	$20.5B	$24.1B	$27.6B	$31.1B
- Capex	$545M	$670M	$788M	$900M	$1.0B
- Δ NWC	$598M	$575M	$581M	$502M	$277M
Free Cash Flow	$26.1B	$32.2B	$37.9B	$43.5B	$49.4B
Discount Factor	0.893	0.713	0.569	0.454	0.323
Present Value	$23.3B	$22.9B	$21.6B	$19.7B	$16.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$49.4B

Terminal Growth Rate3.00%

WACC11.95%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$567.9B

PV of Terminal Value$183.6B

Exit Multiple Method

Year 10 EBITDA$53.8B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$1.2T

PV of Terminal Value$382.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$205.6B

PV of Terminal Value$183.6B

Enterprise Value$389.3B

(-) Net Debt$5.4B

Equity Value$383.8B

Shares Outstanding4.2B

Price per Share$90.76

Exit Multiple Method

PV of Projected FCFs$205.6B

PV of Terminal Value$382.4B

Enterprise Value$588.0B

(-) Net Debt$5.4B

Equity Value$582.6B

Shares Outstanding4.2B

Price per Share$137.76

Pure Model Fair Value

$114.26

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
9.95%	$135.28	$137.37	$139.77	$142.54	$145.77
10.95%	$122.63	$124.15	$125.85	$127.78	$129.99
11.95%	$111.89	$113.01	$114.26	$115.66	$117.23
12.95%	$102.61	$103.46	$104.40	$105.44	$106.59
13.95%	$94.51	$95.17	$95.88	$96.67	$97.54

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$83.02

-15.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 2.14

Base Case

$114.26

15.8% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.71

Bull Case

$150.64

52.6% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.46

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Communication Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth13.24%

Year 3 Revenue Growth10.08%

Year 5 Revenue Growth8.53%

Year 7 Revenue Growth6.32%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin23.80%

Terminal EBIT Margin29.49%

Tax Rate13.69%

Historical Capex / Rev1.07%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 22x EV/EBITDA (Communication Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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