Netflix Stock Is Down 22% This Year. Is it a Buy Ahead of Earnings?

Netflix is set to release its third-quarter earnings report on Oct. 20. Here’s Morningstar’s take on what to look for in Netflix’s earnings and the outlook for its stock.

Key Morningstar Metrics for Netflix

• Fair Value Estimate
  : $80.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

Netflix Earnings Release Date

• Tuesday, Oct. 20, 2026, after the close of trading

What to Watch for in Netflix’s Q3 Earnings

• Will revenue accelerate from last quarter, or continue to decelerate? Last quarter, it was up 13.4% year over year, or 11.4% in constant currency terms.
• Does fourth-quarter revenue guidance imply something different than the acceleration or deceleration we saw in the third quarter?
• As usual, we’ll watch the growth rates in each of the four geographies the firm reports, as most of the subscriber gain opportunities we expect come from international markets.
• Will there be any change to the 31.5% full-year operating margin guidance? Ongoing margin expansion is a key component of the thesis behind investing in Netflix.
• We always crave details about Netflix’s advertising revenue and any changes in its content investment philosophy, including its sports strategy.
• Valuation now looks very reasonable, and we think the stock prices in sales growth deceleration. As such, it looks undervalued no matter what the firm reports, unless it announces a surprise that calls the health of the business into question.

The following are excerpts from Morningstar’s company report on Netflix stock.

Fair Value Estimate for Netflix

With its 3-star rating, we believe Netflix’s stock is fairly valued compared with our long-term fair value estimate of $80 per share, which implies a price/earnings multiple of 22 and an EV/EBITDA multiple of 19 times our 2026 projections.

We project a compound annual revenue growth rate of about 10% through 2030, followed by mid-single-digit growth for the past five years of our 10-year forecast. We expect international markets to lead this growth, given the opportunities they still have to add new members. In the mature, highly penetrated US and Canadian markets, we expect far less new member growth. The mid- to high-single-digit average revenue growth that we project throughout our forecast in UCAN is led by price increases and advertising revenue.

Penetration rates in Europe, the Middle East, and Africa, Latin America, and Asia-Pacific significantly trail those in the US, so we expect significant room for member growth. As Netflix continues to create more country-specific content and find the right pricing strategy, we believe penetration can go higher, though we don’t expect most countries to get close to the penetration rates in UCAN. We believe subscriber growth in APAC can average a low-double-digit rate through 2030, driven by India, while we project the Latin America and EMEA subscriber bases to grow in the mid-single digits annually. We don’t expect ARM growth to be as strong, mostly due to a greater mix from countries that feature lower pricing, but we still project a low-single-digit annual rate as subscription prices rise and advertising revenue takes hold. We project average revenue growth in EMEA and Latin America of about 10% annually through 2030 and 8% through 2035, while we project APAC to be the fastest-growing region, averaging more than 16% through 2030 and 11% through 2035.

Read more about Netflix’s fair value estimate.

Economic Moat Rating

We assign Netflix a narrow moat rating based on intangible assets. Netflix has two advantages that set it apart from streaming-video peers. First, it has no legacy assets that are losing value as society transitions to new ways of consuming video entertainment at home, allowing it to put its full effort behind its core streaming offering. Second, it was the pioneer in its industry, providing it a big head start in accumulating subscribers and moving past the huge initial cash burn necessary to build a successful streaming service. This subscriber base was critical in creating a virtuous cycle for Netflix that we doubt can be attained by more than a small number of competitors.

Ultimately, having a successful streaming service is all about offering customers a continuing depth of appealing content at a price point that they deem reasonable. The streaming industry is not necessarily a zero-sum game, as customers can always add incremental subscriptions, but consumer budgets are finite, so, in practice, we expect only a handful of streaming services to consistently maintain very large customer bases, which we think will be necessary to continue funding content investments.

Read more about Netflix’s economic moat.

Financial Strength

Netflix is in good financial shape. It ended June 2026 with a net debt/EBITDA ratio of 0.4, with the firm holding $9.1 billion in cash and $14.3 billion in total debt. More importantly, the years of cash burn are long behind Netflix, giving the firm a good cash cushion after funding its content budget. Even after investing nearly $20 billion in content, we expect $11 billion in free cash flow in 2026 (adjusted down for the Warner Bros. termination fee windfall), with growth each year thereafter throughout our forecast.

Netflix has repurchased over $25 billion in shares since 2023, with the buyback accelerating after the Warner Bros. acquisition fell through. We now think Netflix is open to major acquisitions, and it has ample financial flexibility to do so. Until then, we expect the share repurchases to continue, as cash is piling up, and it has few alternative uses. With the firm trading at historically low valuations, we think this is an excellent use of the excess cash. With management looking for ways to accelerate growth, we don’t expect the firm to pay a dividend in the near future, but we think it should.

Read more about Netflix’s financial strength.

Risk and Uncertainty

Our Uncertainty Rating for Netflix is High. Our rating is largely based upon the evolving streaming media landscape and the growing competition Netflix faces, including from free streaming platforms.

In our view, Netflix’s tremendous success is due largely to being a first mover in the streaming industry and adapting its business model to where the industry was going, while its media peers focused on their legacy businesses.

The landscape has changed, as nearly every major media company is promoting its own stand-alone streaming service. Also, Netflix is more focused on profitability and cash generation than it was in its infancy, meaning prices for consumers have risen substantially over the past several years. Customers now have other choices for streaming programming, and the price they pay for Netflix is no longer an afterthought.

As the streaming businesses of competitors mature, they may bundle their services together—with or without Netflix—or they may offer their services as add-ons for pay TV subscribers who receive their linear channels, a foothold Netflix doesn’t currently have. These factors make it possible that Netflix will have a tougher time growing its subscriber base or generating as much revenue per subscriber.

Read more about Netflix’s risk and uncertainty.

NFLX Bulls Say

• Netflix has already attracted a massive customer base and level of profitability. This advantage over competitors makes it more likely a virtuous cycle can continue, with Netflix securing more content that attracts and holds more subscribers.
• Advertising-supported subscriptions open Netflix to a wider pool of subscribers and a major new source of revenue.
• Netflix has significant room to grow in international markets where it has already shown promise with local content.

NFLX Bears Say

• Netflix faces competition that it has not had to deal with in the past. As consumers have more options for quality streaming services, it’s more likely that Netflix could get cut out of some consumer budgets.
• Netflix’s US business is mature, with very high penetration of total households, meaning price increases may need to be a bigger component of future growth.
• Netflix will need to spend more on content—through sports rights and local international investment—to increase membership and prices at rates it has historically, when it worked from a lower base and with less competition.

This article was compiled by Lauren Solberg.