Netflix, Inc. — A Company & Valuation Analysis
COMPANY & VALUATION ANALYSIS · FI.300 CORPORATE FINANCE, GOLDEN GATE UNIVERSITY
Is Netflix still worth buying at today’s price?
A full financial analysis of Netflix, Inc. (NASDAQ: NFLX) — three years of ratio trends, a calculated cost of capital, and a capital-structure shift — benchmarked against The Walt Disney Company (NYSE: DIS) as the closest direct comparable.
16.79% weighted average cost of capital
41.26% return on equity, FY2025
$45.2B FY2025 revenue, +16% YoY
BUY recommendation
The question
Netflix trades at a premium multiple, carries a beta well above the market, and just walked away from an $82.7 billion acquisition. The question this analysis answers is simple to ask and hard to answer well: is the company generating returns that justify its cost of capital and its risk — or is the market pricing in growth that isn’t really there?
The approach: calculate Netflix’s actual weighted average cost of capital from first principles (CAPM, a market-sourced cost of debt, market-value weights), compare it against three years of realized return on equity, and benchmark both against the streaming company most structurally comparable to Netflix — Disney.
Company snapshot
FOUNDED 1997
DVD-by-mail to global streaming
Founded by Reed Hastings and Marc Randolph; launched streaming in 2007 and original content in 2013 with House of Cards.
SCALE
325M+ paid subscribers
FY2025, across plans priced roughly $1–$37/month in USD-equivalent terms worldwide.
MARKET VALUE
~$306.6B market cap
$72.82/share × 4,210M shares outstanding (June 2026).
Netflix’s primary competitors are Amazon Prime Video, Disney+, Hulu, Apple TV+, and HBO Max, inside a global streaming market valued at roughly $145.9B in 2025.
Recent developments. In December 2025 Netflix agreed to acquire Warner Bros.’s film/TV studios plus HBO and Max for approximately $82.7 billion — the deal was terminated before closing, and Netflix recognized a $2.8 billion termination fee in Q1 2026. That same quarter, revenue grew 16% YoY to $12.25 billion (beating estimates), but the stock fell roughly 10% in after-hours trading on guidance pointing to decelerating growth and the announced departure of co-founder Reed Hastings from the board.
Financial performance: operating leverage at scale
Margins are expanding faster than revenue
Revenue grew 16% YoY ($39.0B → $45.2B), but operating income grew 28% ($10.4B → $13.3B) — operating margin expanded from 26.7% to 29.5%, a 280 basis-point gain in one year. Content amortization ($16.4B), the largest cost line, doesn’t scale proportionally with incremental revenue, so profit compounds faster than the top line as the subscriber base grows.
Free cash flow confirms the earnings are real
FY2025 operating cash flow of $10.15B and free cash flow of $9.46B (net of $688M capex) against net income of $10.98B — an 86% FCF-to-net-income conversion. Content amortization ($16.4B) is nearly in balance with cash content spend ($17.1B), meaning Netflix isn’t inflating earnings by under-amortizing its content library.
Netflix used its $9.46B in free cash flow to repurchase $9.13B of its own stock in FY2025 — returning nearly all of it to shareholders — while still holding a $9.03B cash balance.
Ratio trends: Netflix vs. Disney
Disney was selected as the primary comparable because it competes directly with Netflix in streaming (Disney+, Hulu, ESPN+) and produces original content at comparable scale. Alternatives were rejected: Amazon, Peacock, and Apple TV+ sit inside parent companies whose consolidated financials are dominated by unrelated businesses, and Warner Bros. Discovery’s financials are distorted by merger-related impairments.
Return on equity, FY2023–FY2025
Netflix (NFLX) Disney (DIS)
FY2023
FY2024
FY2025
Debt-to-asset ratio, FY2023–FY2025
Netflix (NFLX) Disney (DIS)
FY2023
FY2024
FY2025
This pairing is what makes the trend analytically meaningful: Netflix’s ROE nearly doubled (26.3% → 41.3%) while its leverage simultaneously declined (32.0% → 27.4% debt-to-assets). A company can mechanically inflate ROE by piling on debt — Netflix did the opposite, growing its equity base from $20.6B to $26.6B through retained earnings while paying down debt. The improvement is operational, not financial engineering.
Cost of capital
Beta was calculated by regressing 60 months of Netflix returns (Jul 2021–Jun 2026) against the SPDR S&P 500 ETF (SPY) as the market proxy, yielding a beta of 1.5025 — versus Disney’s Yahoo Finance beta of 1.39. Netflix amplifies market moves about 1.5×; that higher systematic risk pushes its CAPM-required return to 17.34%, a 97 basis-point premium over Disney’s 16.37%.
rₛ = 4.392% + 1.5025 × (13.008% − 4.392%) = 17.34%
Risk-free rate 4.392% (CBOE 10-Year Treasury Yield, ^TNX) and market return 13.008% (60-month annualized SPY average). Pre-tax cost of debt of 5.00% was sourced from the yield to maturity on a Netflix senior note (maturing June 2030) via the FINRA Bond Center.
| WACC component | Value |
|---|---|
| Weight of debt (wᵈ) | 4.21% |
| Weight of equity (wᴸ) | 95.79% |
| Pre-tax cost of debt (rᵈ) | 5.00% |
| Effective tax rate (T) | 13.69% |
| Cost of equity (rᴸ) | 17.34% |
| WACC | ≈16.79% |
The spread that matters most
Netflix’s calculated WACC — the minimum return it must deliver to satisfy debt and equity holders — is 16.79%. Its FY2025 return on equity was 41.26%, up from 26.27% three years earlier. That’s roughly a 24-percentage-point spread above the cost of capital, and it isn’t coming from leverage — debt-to-assets fell over the same period. That combination is the core evidence behind the Buy call below.
Capital structure: a five-year shift
Netflix’s balance sheet has transformed from debt-heavy to equity-dominant. Two forces drove it: free cash flow turned sustainably positive from 2022 onward (letting Netflix pay down gross debt from $15.8B to $13.5B), and net income nearly quadrupled ($2.76B → $10.98B), compounding $15.6B of retained earnings directly into equity with no dividends paid out to offset it.
Long-term debt vs. common equity, % of total capital
FY2020
FY2025
Netflix carries no preferred stock. FY2025 book capital: $13,464M long-term debt (33.6%) and $26,615M common equity (66.4%), on $40,079M total capital.
Dividend policy
Netflix has never paid a cash dividend — the trailing-twelve-month payout remains $0.00/share. Instead, it returns capital through buybacks ($9.13B in FY2025 alone). Three reasons: Netflix ran negative free cash flow from roughly 2015–2021, making dividends structurally impossible during the content-investment years; management continues to prefer the flexibility of buybacks; and elevated future content or technology spend makes a fixed distribution premature. Disney, by contrast, suspended its dividend in 2020, reinstated it in FY2023 at $0.30/share semi-annually, and raised it to an annual $1.00/share by FY2025 — a mature income-stock posture Netflix has deliberately avoided.
Where the growth comes from
ADVERTISING TIER 250M+ monthly active viewers (May 2026); tracking to ~$3B revenue in 2026 (2× 2025), $9B long-term target by 2030. 60%+ of new signups in eligible markets now choose the ad tier.
LIVE SPORTS 10-year exclusive global WWE Raw deal from Jan 2025; NFL agreement expanded through 2029 (+5 broadcast windows/season); 3-year MLB deal; exclusive FIFA Women’s World Cup rights for 2027 and 2031.
GAMING A longer-horizon, higher-uncertainty bet. Management is pursuing a cloud-first strategy explicitly framed as a retention tool, not a standalone revenue line.
Key risks
What could break this thesis
- Mature-market saturation. U.S./Canada broadband penetration already exceeds 70%, and the 2023 password-sharing crackdown tailwind is largely exhausted.
- Constrained M&A. The failed $82.7B Warner Bros. deal — and its $2.8B termination fee — signals that large-scale content acquisitions face real limits, leaving organic investment as the primary growth lever.
- Decelerating guidance. Q1 2026 guidance pointed to growth slowing to roughly 13%, which contributed to a meaningful stock decline.
- EU content quota. The European Commission has proposed a 20% local-content quota that would force substantially more European programming investment.
- Rising sports-rights costs. Live sports commitments are large, fixed, and multi-year — a real margin risk if advertising or subscriber growth underperforms.
Full ratio summary
| Ratio | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Liquidity | |||
| Current ratio | 1.15x | 1.22x | 1.19x |
| Quick ratio | 1.15x | 1.22x | 1.19x |
| Asset management | |||
| Total asset turnover | 0.69x | 0.73x | 0.81x |
| Fixed asset turnover | 9.45x | 10.55x | 10.73x |
| Debt management | |||
| Debt-to-asset ratio | 32.0% | 28.6% | 27.4% |
| Times interest earned | 9.94x | 14.49x | 17.16x |
| Profitability | |||
| Operating margin | 20.62% | 26.71% | 29.49% |
| Profit margin | 16.04% | 22.34% | 24.30% |
| Basic earning power | 14.27% | 19.43% | 23.97% |
| Return on assets | 11.10% | 16.24% | 19.75% |
| Return on equity | 26.27% | 35.21% | 41.26% |
| Market value | |||
| EPS | N/A | N/A | $2.61 |
| P/E ratio | N/A | N/A | 27.92x |
| Market-to-book ratio | N/A | N/A | 11.52x |
Recommendation: Buy
The clearest signal in this analysis is the spread between what Netflix earns and what it costs Netflix to raise capital. Against a WACC of 16.79%, Netflix posted a 41.26% ROE in FY2025 — up from 26.27% three years prior — and that gain is not a leverage trick, since debt-to-assets fell over the same window. The second reason is diversification: a 24.30% net-margin subscription business (up from 16.04%) is now layering a fast-scaling advertising business on top, on pace for $3B in 2026 revenue against a $9B target by 2030. The acknowledged risks — a beta of 1.5025, saturating mature markets, and real limits on large-scale M&A — don’t outweigh a company generating outsized returns on equity, expanding margins, and delevering at the same time.
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Email me for the reportData sources: Netflix FY2025 Form 10-K & Q4 2025 Shareholder Letter, Yahoo Finance (Disney beta), FINRA Bond Center (Netflix cost of debt), CBOE 10-Year Treasury Yield. Prepared by Mario Nonog for FI.300 Corporate Finance, Golden Gate University, July 2026.