If You're Buying Netflix Stock at a 52 week low… Get Ready! $NFLX

Summary

Netflix ($NFLX) beat earnings expectations, but its stock fell amid slowing revenue growth, a weaker outlook, and concerns about its advertising rollout. The speaker frames the central investment question as whether Netflix can keep winning viewers’ attention and growing profits—not simply adding subscribers, which the company stopped reporting in 2025.

Business and Competitive Position

Netflix has evolved from a DVD-by-mail service into a global streaming and entertainment company, expanding into advertising, live programming, sports, and video games.

The speaker identifies Netflix’s global distribution, recommendation system, brand, content spending, and viewing habits as elements of its competitive “moat.”

• Netflix accounted for about 7.7% of US TV viewing, compared with YouTube’s 15.8%.
• More than a third of Netflix viewing is now for non-English-language content, versus less than 10% a decade earlier.
• Netflix’s audience is approaching one billion, but the speaker says it reaches less than half of the households it could realistically serve.
• India is highlighted as a growth opportunity, with viewing reportedly up 24%.

Risks include competition for attention from free video and social media, including YouTube and TikTok; Netflix’s recurring need to spend heavily on new shows; and the possibility that growth in mature markets will increasingly depend on price increases.

Recent Developments and Performance

The stock was described as down nearly 30% year to date, about 51% below its all-time high, and down another 5% the day after the latest earnings report.

Business and management developments

• In February, Netflix withdrew from a potential acquisition of Warner Bros. Discovery after a rival bid came in higher. Netflix received a $2.8 billion termination fee, and its shares rose 14% at the time. The speaker views avoiding an excessive purchase price positively, while noting that critics see the deal as a missed content opportunity.
• In March, Netflix raised its US standard plan from about $18 to $20 per month. The speaker sees customer retention after price increases as evidence of pricing power.
• Netflix laid off about 1,000 employees, around 6% of its workforce, and appointed former Disney executive Peter Rice as chief content officer. The speaker treats the changes as a sign that management believes the content operation can improve, not definitive proof that the previous strategy failed.
• Netflix repurchased a record $4.8 billion of shares in the latest quarter and had authorized more than $22 billion in additional buybacks. The speaker says buybacks can increase each remaining shareholder’s ownership share, though their benefit depends on the price paid.

Quarterly results and guidance

Quarterly results cited:

• Revenue: $12.9 billion, up about 12%
• Operating income: up 37%
• Operating margin: 34.6%
• Net profit: about $3.7 billion
• Free cash flow: about $2.9 billion
• US and Canada: up 11%, representing about 44% of the business
• Latin America: up 17%

The speaker cautions that some of the reported profit improvement reflected the timing of expenses, which could make it temporary. Revenue growth had slowed from nearly 18% a year earlier to about 12%.

Guidance called for about $51 billion in full-year revenue, with slower growth expected in the next quarter and a slight margin decline, partly due to upfront severance and restructuring costs.

Netflix cut its annual advertising revenue forecast by about $300 million, citing delays in advertising technology and partnerships. Advertising was still growing by more than 80%, but represented only about 5% of revenue. Netflix planned to launch ads in 15 additional countries the following year.

The speaker says the $2.8 billion Warner deal fee boosted this year’s cash flow and profits, so it should be excluded or adjusted for when assessing sustainable earnings and cash flow.

Bull and Bear Arguments

Potential upside

• Global scale and room for further household penetration, particularly in developing markets.
• Pricing power: the speaker argues that price increases have not led to proportionate customer losses, and that serving additional viewers for existing content can be highly profitable.
• Advertising could become a larger, incremental revenue stream, especially through the lower-priced ad-supported plan.

Key risks

• Competition from free entertainment may reduce Netflix viewing time even if subscribers keep paying. Netflix disputed a research firm’s claim that it had lost US subscribers.
• Growth in wealthier, more mature markets may be constrained, increasing reliance on further price rises.
• Content is expensive and must be replenished continually, while hits are uncertain. Live sports and video games add execution risk and could reduce profits if costs exceed returns.
• Investors may react sharply to slower growth or missed expectations when a stock is valued for rapid expansion.

Valuation Figures and Investing Framework

The speaker’s analysis, using figures presented in the video, included:

• Share price: $64
• Market capitalization: $272 billion
• Enterprise value: $294 billion, with the $22 billion difference described as debt
• Free cash flow: $11.4 billion in the prior year
  • The speaker cited a five-year average of $6.8 billion, but estimated a normalized five-year average closer to $6 billion after adjusting for the termination fee.
  • The estimated normalized one-year figure was about $8.5 billion.
• Return on capital: 17.6% five-year average and 25% for the latest year
• Price/free-cash-flow ratio: 24, described as somewhat elevated and distorted by the one-time fee
• Profit margins: 18.3% over 10 years, 22% over five years, and 30% for the latest year including the fee
  • The speaker estimated that excluding the fee would leave roughly $12 billion in profit and a margin near 25%.
  • Gross margin was cited at almost 51%.
• Of the speaker’s “eight pillars,” six were said to be met: high return on equity, share buybacks, five-year growth in cash flow, net income and revenue, and debt manageable relative to free cash flow. The five-year P/E and price/free-cash-flow measures were considered high.
• Analyst estimates cited were $3.60 per share in earnings this year and $6.46 in four years.
• The video also gave a sequence of earnings growth figures—40%, 6%, 20%, 19%, and 18%—and revenue-growth estimates of 13.5%, 11.3%, 10%, 9%, and 8%.

Valuation approach

The speaker’s step-by-step valuation approach was to:

1. Model revenue growth over 10 years at 4%, 7%, and 10%.
2. Use free-cash-flow margins of 16%, 20%, and 24%, while recognizing Netflix’s ongoing content-spending needs and adjusting for the one-time fee.
3. Apply future P/E multiples of 16, 19, and 22, reflecting a premium business while allowing for competition and uncertainty.
4. Use a 9.5% required return, without a margin of safety, to estimate value rather than a desired purchase price.

This produced a stated valuation range of $31–$92 per share, averaging $55, below the cited $64 market price.

For his personal 15% return hurdle, the speaker’s stated range was $22–$61, with $37 as the ideal figure. He said he would place Netflix on a watchlist at $40 to trigger a review—not as a buy recommendation.

The speaker’s broader investing principle is that a strong company can still be a poor investment if bought at too high a price. He advocates making explicit assumptions about growth, cash flow, valuation multiples, and required returns rather than trading on headlines or stock-price movements.

Instruments and Companies Mentioned

• Netflix ($NFLX): Streaming, advertising, content, buybacks, and valuation
• Warner Bros. Discovery: Potential acquisition target
• YouTube and TikTok: Competition for viewing time
• BTI / British American Tobacco: Cited by the speaker as an example of a low-priced, dividend-paying investment; he said it had risen from $30 to $60 and described a hypothetical fourfold return from dividends over 20 years, even if the business declined
• Blockbuster: Historical video-rental competitor

Sectors discussed include streaming, entertainment, advertising, sports, video games, and tobacco.

Disclosures and Cautions

The speaker says the channel provides investing education, not stock-market advice, and cautions viewers not to take its headlines or thumbnails literally. The $40 watchlist level is presented as his own review trigger, not a general recommendation. The video also promotes the channel’s stock-analysis software and paid trial.

Presenter and sources: Paul of Everything Money is the presenter. The video refers to investor Bill Ackman, in-house analyst Dalton, and an unnamed research firm; Tim is mentioned but not identified.