Is Netflix Stock an Undervalued Stock to Buy? | NFLX Stock Discounted Cash Flow Valuation

本站添加: 2026-05-31

[00:00:00]Netflix stock is down about 6 1.5% year-to date in 2026 and following the acquisition saga of Warner Brothers, investors have shifted their attention elsewhere and have been neglecting Netflix stock in recent weeks. Now, I wanted to provide a calculation to deliver what I believe is a fair value estimate for this business so that you can see if it's an undervalued stock that looks attractive at current market prices less than $90 per share. I want to thank the Mly Full for sponsoring this video. Visit full.com/parkev for the 10 best stocks to buy now. So what I have here is my spreadsheet where I calculate a fair value for Netflix and it incorporates a few elements. It incorporates my estimates for what I believe the company will generate in free cash flow between today and the very very long run. It also calculates a weighted average cost of capital and then it brings it together to deliver a fair value estimate for the company's shares. So, let's start with my estimates for free cash flow up here underneath the green where it says 2025 2026. For 2026, I'm estimating Netflix generates about 13.2 billion in free cash flow. And that figure increases relatively quickly from 13 billion to about 26 billion by 2030. And that number keeps rising to over 51 billion by 2035.

[00:01:37]The factors that I believe drives this kind of growth for Netflix into the future are several. And I'll give you two of my primary factors. Number one, more and more people around the world will continue to shift more of their consumption of content through streaming subscriptions. And more and more people will cancel their cable and satellite subscriptions. And those that still have cable and satellite, their viewing hours will shift more and more towards streaming subscriptions as that's where the bulk of the content investments will be. And more recently, that trend is accelerating. The biggest block in my opinion between more people shifting their content viewing to streaming subscriptions instead of cable and satellite was the sports package. And this year in 2026, sports has become a lot more available across streaming platforms compared to previous years where these studios and those that own the sports rights were restricting and were resisting moving more of that sports content over to their streaming channels because they understood that was really the only reason or one of the only reasons that was keeping people subscribed to their cable and satellite.

[00:02:59]light subscriptions and so they were hesitant to move that sports content because they understood that would cause that big exodus of subscribers over to streaming and I believe that will continue to drive people to this area.

[00:03:14]Secondly, I think the second reason that people will be streaming more content instead of watching through cable and satellite subscriptions or for Netflix specifically is because they're getting really good at creating content that people like to watch. Remember in Netflix's early days, they were mostly aggregating content, purchasing content from other people that were creating the content. companies like Disney and Paramount and others. That's how Netflix was getting all of its content by renting or licensing and putting those movies and shows on its platform for people to consume. And more recently, and this is accelerating, Netflix is creating its own content and it's getting really good. And the content that Netflix creates attracts a lot of viewers. Netflix collects data, learns what people like to watch, and then creates content that fits people's needs. Furthermore, given Netflix's massive subscriber base, an estimated over 300 million subscribers that are paying, and then of course hundreds of millions more that are watching but are not paying because they're part of the household. So that data and the revenues from those subscribers allows Netflix to create content on a scale that is unmatched by any other studio or any other content creator. And that competitive advantage I believe will allow Netflix to generate above average growth, above market growth between now and the very long run. So, that being said, everything I just talked about is uncertain, right? I'm talking about the future. I'm talking about things that will happen over time. Nobody knows what's going to happen in the future, not even me. If anybody tells you they know what's going to happen in the future, you should run away from them and quickly. And so, because of that risk factor, you want to incorporate a cost of capital, a discount rate, because it could be incorrect. your estimates could be incorrect. And furthermore, money in the future is worth less than money today because of the time value of money and because of the risks, the opportunity cost of capital. If you had $100 in your pocket today, you could put it in a certificate of deposit or you could put it in a short-term government bond and you can earn almost 5% rate of return on your money. And so if you're not going to get your money back for 5 years, you're missing out on 5% each and every year over those 5 years. So you want to account for that and you want to discount those future cash flows. So the specific discount rate I'm using for Netflix is 10.44%.

[00:06:06]I'm estimating a cost of debt and after tax cost of debt of 5 and 3/4. I calculated a cost of equity at 12% using the capital asset pricing model with a beta of 1.25, a risk-free rate of 4 1.5% and a market risk premium of 6%. Now, I'm applying a target capital structure for Netflix at 25% debt and 75% equity.

[00:06:35]Even though the company is not financed by this level of debt to equity right now, I'm forecasting that over time Netflix will borrow more and lower the equity portion of the capital structure and increase the debt portion of the capital structure because as you can see the estimated cost of debt is less than half the calculated cost of equity. And so CFOs and companies of large organizations as they mature more of their capital structure is weighted towards debt as long as the cost of debt is significantly lower than the cost of equity. So that's what I'm forecasting Netflix will do over time. Borrow more money at lower and lower interest rates as the business matures, becomes less risky, its cash flow from operations improves, its competitive advantages improve. A can borrow at lower costs. So now we arrive at the value of operations, right? This is the present value of all of the cash flow I expect the business will generate between today and the very very long run. And it totals about 529.76 billion. To this total, we add the company's nonoperating assets. We subtracted that $15 billion and we arrive at a value of equity of $527 billion.

[00:08:00]That's the value of the equity of the business. But we want to know what's the value per share. And so we need to divide that number by how many shares there are outstanding.

[00:08:11]And when we do that, we arrive at an intrinsic value per share or a fair value per share of $125.

[00:08:19]And if you compare that with the market price of $87.68,