Netflix Earnings: Fine Results but No Excitement

Key Morningstar Metrics for Netflix

• Fair Value Estimate
  : $80
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Netflix’s Earnings

Netflix NFLX‘s results were good, with sales (up 13% year over year) and operating profit (up 11%) meeting its guidance. The firm maintained its full-year outlook. Netflix also released its first-half 2026 engagement report, but said that it will only release these reports annually beginning in 2027.

Why it matters: Netflix stopped releasing subscriber metrics last year, just as we anticipated subscriber additions would begin to wane. Now, after repeatedly highlighting the importance of engagement, the firm characterized engagement as nuanced and will offer less transparency.

• The prevailing narrative is that Netflix’s business is deteriorating. Management’s decision to pull back on its engagement report should only encourage this thinking. We believe this is the biggest reason for the high-single-digit stock decline after hours.

The bottom line: We maintain our $80 fair value estimate. The market has seemingly signed on to our view that Netflix will have difficulty maintaining double-digit sales growth in the long term—which the firm expects—and it has overcorrected, in our opinion.

• The stock is reasonably valued for the cash generation and growth it has. It is now trading below 20 times expected 2026 earnings, and we expect profits to continue growing at a faster pace than revenue each year.

Key stats: Year-over-year sales growth was in the double digits across all regions during the quarter, ranging from 10% in the US to 17% in Latin America and Europe, the Middle East, and Africa.

• We expect sales growth to slow further in the coming years, but the ongoing opportunity for international subscriber additions and expanding advertising revenue should keep sales growth from falling below the mid-single digits, even in down years.
• The operating margin contracted by 70 basis points year over year, but the recognition of content costs is more heavily weighted to the first half this year. Margins are still expected to expand by 2 percentage points in 2026.