Haverhill Financial Research · October 12, 2026
Summary: Haverhill price target $81 (12 months)
Netflix's revenue growth has slowed from 17.6% at the end of 2025 to a guided 11.7% for the third quarter, and the stock has fallen with it, to $70.30. At that price the shares trade at about 23 times our estimate of 2026 earnings, excluding the one-time Warner Bros. termination fee, for a company targeting a 31.5% operating margin and roughly doubling its ad revenue this year. Our 12-month price target of $81 (through October 2027) sits about 15% above the current price, so we rate the shares Buy.
Netflix filings through the Q2 2026 Form 10-Q; Haverhill Financial Research model; price as of Nasdaq close Oct 9, 2026
Growth is slowing, profits are not. Revenue growth is guided to 11.7% in Q3, down from 16.2% in Q1, but Netflix still expects a 33.2% operating margin for the quarter and 31.5% for the year.
Ads and live are the new levers. Ad revenue is on track to roughly double to about $3 billion in 2026, and the ads plan took more than 60% of Q1 sign-ups in the countries that offer it.
Our view: the slowdown is already in the price. The weak spot is engagement, with viewing hours up only 2% in the first half, and our target sits right at the 15% line between Buy and Hold.
Investment thesis in brief
Our thesis: Netflix has moved from a subscriber-growth story to a pricing, ads and margin story, and the share price has fallen as if that shift were failing. The company's numbers say it is working, only more slowly.
What we like. Netflix turns scale into cash. It guides to about $12.5 billion of free cash flow in 2026 and spent $4.7 billion on buybacks in Q2 alone, its largest quarter of repurchases to date. It has $27.1 billion of authorization left, about 9% of its market value.
What the market may be missing. Advertising is still small, about 6% of guided 2026 revenue on our math, and growing about 100% a year. The full-year guide of $51.0 billion to $51.4 billion also implies Q4 growth of roughly 12% (Haverhill calculation), so the slowdown should level off rather than keep falling.
What holds us back. People are not watching much more. Members watched more than 97 billion hours in the first half of 2026, up 2%. Underlying margins have also flattened: Q2 operating margin was 33.4% against 34.1% a year earlier, and technology and development spending rose 22%.
How does the business actually make money?
Netflix charges a monthly fee for its streaming service and, increasingly, sells advertising on a cheaper plan. It says it reaches an audience approaching 1 billion people. It does not report a quarterly membership count; the last milestone it gave was 325 million paid memberships, crossed in Q4 2025.
Who pays, and where. In Q2 2026 the US and Canada brought in $5.43 billion, 43% of revenue, growing 10%. Europe, the Middle East and Africa added $4.03 billion (up 14%), Latin America $1.58 billion (up 21%) and Asia-Pacific $1.51 billion (up 16%). Netflix raised prices in the US, Mexico and Spain in the first half and said the results were consistent with past increases.
The ad tier. The US ads plan costs $8.99 a month. It accounted for more than 60% of Q1 sign-ups in countries where it is offered, and Netflix now works with more than 4,000 advertisers, up 70% in a year. Ad revenue passed $1.5 billion in 2025 and is guided to about $3 billion in 2026.
Where the money goes. Content is the main cost. Cost of revenues, mostly content amortization (the expensing of shows and films over their useful life), was $6.04 billion in Q2, 48% of revenue. Netflix expects amortization to grow about 10% in 2026 and cash content spending to run about 1.1 times amortization. Live events will take just over 5% of 2026 content spend but only about 1% of viewing, a trade Netflix accepts because live events produced six of its ten best sign-up days in the past five years.
What do the numbers say?
Q2 2026 revenue rose 13.4% to $12.56 billion (12% excluding currency moves). Operating income was $4.19 billion, a 33.4% margin, and diluted earnings per share rose 11% to $0.80. Both revenue and margin matched guidance.
Exhibit 1: revenue growth peaked at the end of 2025 and is guided to 11.7% in Q3 2026
Three things investors should know.
Growth is slowing toward 12%. Revenue growth went from 17.6% in Q4 2025 to 16.2% in Q1 and 13.4% in Q2, and Q3 is guided at 11.7%. Netflix narrowed its 2026 range to $51.0 billion to $51.4 billion, or 13% to 14% growth.
Margin gains are smaller than they look. The 2026 target of 31.5% compares with 29.5% in 2025, but 2025 absorbed a $619 million Brazilian tax charge and the 2026 target includes about $275 million of deal-related costs. Adjusting for both, the underlying gain is about one point (Haverhill calculation).
One-offs distort the first half. Warner Bros. Discovery ended its merger agreement with Netflix in February, and Netflix booked a $2.8 billion termination fee as other income in Q1. That lifted Q1 EPS to $1.23 and first-half free cash flow to $6.6 billion. Excluding the fee, we estimate 2026 EPS of about $3.05.
Balance sheet. At June 30, Netflix held $9.1 billion of cash against $14.3 billion of debt, for net debt of $5.2 billion. In July it issued $1 billion of 2036 notes to refinance 2026 debt. All per-share figures here reflect the ten-for-one stock split of November 2025.
Competition and moat
Netflix's edge is scale: it spreads a very large content budget over the biggest paying audience in streaming.
Who it competes with. Netflix names YouTube as the competitor leaning hardest into TV screens, and YouTube will become the home of the Oscars in 2029. Its share of US TV time reached a record 9.0% in December 2025, while linear TV still held over 40%.
Where the moat is real. Higher prices in the US, Mexico and Spain have not hurt results, which shows pricing power. Live events such as the World Baseball Classic, which drew 31.4 million viewers in Japan, bring members back.
Where it is thin. With viewing up 2%, revenue gains depend on price and ads. Netflix also lost the Warner Bros. library: its all-cash offer of $27.75 per WBD share was terminated, and Paramount Skydance paid the fee on WBD's behalf.
Management. Co-CEOs Ted Sarandos and Greg Peters run the company with CFO Spence Neumann. Co-founder Reed Hastings did not stand for re-election to the board at the June 2026 annual meeting. On Warner Bros., management said the deal made sense "only at the right price".
What is it worth?
We value Netflix at $81 per share over the next 12 months (to October 2027), a probability-weighted blend of three scenarios. That is about 15% above today's price, just meeting our Buy threshold.
Our method. Netflix is consistently profitable, so we value it on earnings:
Start from the 2026 revenue guidance midpoint of $51.2 billion and forecast 2027 revenue growth.
Apply a 2027 operating margin, deduct about $0.5 billion of net interest and tax at 16.5% (close to Q2's rate), and divide by 4.10 billion to 4.14 billion diluted shares, which allows for continued buybacks.
Apply the price-to-earnings multiple we think investors will pay in October 2027.
Weight the cases 25% bear, 50% base and 25% bull.
Why these numbers. Our base case of 11% growth is a little below the 12% implied for Q4 2026, with ads doing more of the work. A 33.0% margin adds about one point to the 2026 underlying level, in line with Netflix's stated intent to grow its margin every year. That gives 2027 EPS of about $3.70. We use 22 times to reflect slower viewing growth.
What the price implies. Each turn of the multiple is worth about $3.70 a share in our base case, and each point of operating margin about $2.50. At $70.30 the stock trades at 19 times our base-case 2027 earnings, so the market is pricing in growth near our bear case.
Today's valuation, for reference. At $70.30 and 4.16 billion shares outstanding, Netflix's equity is worth about $293 billion, or about $298 billion including net debt. That is about 23 times our 2026 EPS estimate of $3.05 excluding the termination fee (Haverhill calculation).
What are the real risks?
We rank the risks by how much they would move our value per share.
Engagement stalls. Viewing hours grew 2% in the first half. If that turns flat, price increases get harder.
Growth falls below 10%. Our bear case of 8% growth in 2027 with a 16 times multiple gives $55 a share.
Content and sports costs climb. Netflix had $25.1 billion of streaming content obligations at June 30, and live rights are taking a growing share of the budget.
Ads disappoint. The 2026 plan assumes about $3 billion of ad revenue.
Currency. About 57% of Q2 revenue came from outside the US and Canada (Haverhill calculation), so a stronger dollar cuts reported growth.
A large acquisition. Netflix says it will pursue selective M&A and lined up $42.2 billion of bridge financing for Warner Bros.
What would change our mind?
Our Buy rests on one idea: growth settles near 11% to 12% while margins keep rising, and the stock is priced for worse. These signals would test that in either direction.
Signals that would move us to Hold or Sell
Q3 revenue below the $12.86 billion guide on October 20.
A 2027 outlook below 10% revenue growth or an operating margin target under 32.5%.
Ad revenue short of about $3 billion for 2026.
The price rises above about $71 with no change in our earnings view, which would put it inside our Hold range.
Signals that would make us more bullish
A 2027 outlook of 13% growth or more with a margin target of 34% or higher.
Viewing hour growth above 3% for a half year.
An ad revenue path well above $3 billion for 2027.
Catalysts to watch
October 20, 2026: Q3 results at about 1:01 p.m. Pacific and management interview.
November 25, 2026: Thanksgiving Eve NFL game.
Late 2026: Tyson Fury vs. Anthony Joshua live fight (date not yet given by Netflix).
December 25, 2026: NFL Christmas Gameday.
January 2027: Q4 results and the first 2027 guidance (timing is a Haverhill estimate).
Sources and disclosures
Every company figure in this report comes from Netflix's own filings and releases, linked below. The analysis, model and price target are Haverhill Financial Research's own work.
Disclosures. Haverhill Financial Research is a publisher of general financial commentary. This report is not personalized investment advice and does not consider any reader's financial situation; readers should do their own research. Price targets are estimates of value, not guarantees. Haverhill ratings follow our published bands: Buy when our 12-month target is at least 15% above the price, Sell when it is at least 15% below, Hold in between. The author of this post does not hold a position in NFLX. Data as of October 9, 2026.
