Netflix at $73: Record Margins, Still Not Cheap

Netflix closed at $73.37 on July 10. If your last mental snapshot of this stock has three digits in it, you're not misremembering — you're just missing a piece of paperwork.

On November 17, 2025, Netflix executed a 10-for-1 forward stock split. The $73.37 on your screen is what used to be $733.70. Nothing about the underlying business changed that day; the share count went up tenfold and the price went down by the same factor.

Here's the part that's actually interesting: strip out the split, and Netflix is still down. Hard. The stock has fallen roughly 43% from its post-split 52-week high of $128.96 — a real, event-driven drawdown, not an accounting illusion or a bad data feed.

And that's the story underneath the story: a company executing about as well as it ever has — record margins, the fastest ad-tier pivot in streaming, demonstrated pricing power — is trading through a serious markdown, and even after that markdown it is not what anyone would call cheap. There's a second story buried further in, too: the competitor most likely to actually hurt Netflix over the next decade isn't Disney or Warner. It doesn't show up on a subscriber chart at all.

What Actually Happened in 2026

The drawdown has a paper trail. It didn't come out of nowhere.

Q1 2026 earnings, reported April 16, beat on both revenue and EPS. The stock fell about 9% that same day anyway. The reason: Q2 guidance came in soft ($12.5B versus a $12.6B consensus), and management didn't raise the full-year outlook despite two recent price increases that should have been showing up in the numbers.

The same day, Reed Hastings announced he was leaving the board entirely, effective that June — the founder stepping away from his last formal seat at the company he built. Jay Hoag, lead independent director since 1999, took over as chairman. Continuity, not a fresh outside voice.

Six weeks earlier, on February 27, Netflix's $82.7 billion bid for Warner Bros. Discovery (WBD) collapsed. Paramount Skydance won the asset with a $110.9 billion, $31-per-share all-cash offer — DOJ-cleared June 12 — and Netflix walked away with a $2.8 billion termination fee instead of the HBO/Warner library it wanted. Layer on a password-sharing crackdown tailwind that's now fully played out (Disney+ and Max copied the playbook, so the edge is gone), and you have four distinct, dateable reasons the stock is where it is.

Netflix's response, on April 22: a new $25 billion buyback authorization — bigger than its entire annual content budget. More on what that does and doesn't tell you later.

None of this is a data anomaly. It's a market repricing real, current-year risk.

The Business That's Genuinely Working

Start with the number that matters most: operating margin has expanded for four straight years with zero reversals, from 17.82% in the 2022 trough to 29.49% in FY2025. Net margin followed the same path, up to 24.30%.

Return on equity now sits at 46.32% trailing twelve months. Take that number with a grain of salt — years of buybacks have shrunk the equity base, which mechanically flattens the denominator and inflates ROE. The more honest version is return on invested capital, which strips that out: 35.60% TTM. Still excellent. Not a leverage trick.

Free cash flow tells the same story from a different angle. In 2022, Netflix barely generated positive free cash flow — a 5.12% margin, the residue of a front-loaded, post-COVID content catch-up. By FY2025 that margin had normalized to 20.94%, a genuinely de-risked cash profile versus the Netflix of three years ago.

The advertising tier is the standout execution story in the whole portfolio. Ad-tier monthly active users went from 94 million in May 2025 to 250 million in May 2026 — one year, a 166% increase — putting Netflix on track for roughly $3 billion in 2026 ad revenue, on pace to double from 2025. More than 60% of new signups in ad-eligible markets now choose the ads plan. This is the fastest-executed pivot into advertising anywhere in streaming.

Netflix raised US prices twice in thirteen months and churn barely moved. That's not a marketing story. That's pricing power, demonstrated rather than asserted.

The pricing evidence is concrete: two US increases in roughly thirteen months — Q1 2025, then again on March 26, 2026 (ads plan $7.99 to $8.99, standard $17.99 to $19.99, premium $24.99 to $26.99, an ~11% average hike) — and churn stayed near its historical ~2% baseline both times. Q1 2026 revenue still grew 16% year over year. Companies that are losing pricing power don't get away with that twice in a row.

Underneath it sits a flywheel that's been independently measured, not just asserted: an arXiv-published study co-authored with Netflix's own data scientists found that swapping the current recommendation engine for a simpler system would cut viewer engagement by 4% to 12%.

The Moat, Honestly Assessed

Here's where the bull case has to get more careful.

Netflix's moat is real, but it is not the kind of moat value investors usually mean when they say "moat." There's no contract. No cancellation fee. No exclusive content library that can't be matched — the whole industry now licenses and produces at scale. A subscriber can cancel Netflix this afternoon and be watching Disney+ tonight with zero friction.

What Netflix has instead is soft lock-in: an accumulated pile of watch history, profile personalization, and continued-viewing state that resets the moment you leave, plus owned infrastructure (the Open Connect CDN, built for roughly $100 million cumulative and saving Netflix an estimated $80 million a year versus market CDN rates) that only pays off at Netflix's scale. Both are genuine advantages. Neither is a hard structural barrier the way switching costs are for, say, enterprise software.

And the moat is expensive to maintain. Netflix isn't asset-light. Defending the personalization/content edge requires roughly $20 billion a year in non-optional content spend, guided up another 10% for 2026. That reinvestment burden is baked permanently into the model — pull it back and the differentiation that supports the pricing power above starts to erode. This is the clearest place where Netflix falls short of a business that prints cash with no further input required.

Where the Price Gets Uncomfortable

Business quality and price are two different questions, and the second one is where this thesis gets thin.

Against Disney, the premium is unambiguous on every measure — roughly 1.5x the P/E, 3-4x the price-to-sales, about 2x EV/EBITDA. Against Amazon, the closer quality comp, it's more nuanced: Netflix actually trades at a lower trailing P/E (23.70x versus 29.14x), but richer on price-to-sales and EV/EBITDA.

The three-scenario math behind this piece doesn't resolve the tension either:

A base case with more upside than the bear case's downside is favorable, technically. But base-case upside of +26% against bear-case downside of -36% is a modest asymmetry, not a wide margin of safety — and the bear case doesn't require a catastrophe to trigger. It requires a 5% EPS growth rate and multiple compression to 16x, both plausible outcomes if ad-tier monetization disappoints or subscriber growth stalls further.

A disciplined value investor evaluating this setup would want that asymmetry to widen — the bear case getting less likely, or the risk/reward narrowing through price movement — before calling this cheap rather than merely good. Right now it's neither obviously expensive nor obviously a bargain.

It's priced for continued execution — which is a specific and fragile thing for a stock to be priced for.

The Competitors That Don't Show Up on the Subscriber Chart

Run the numbers on Disney, Max, Apple TV+, and Paramount, and Netflix wins clearly — bigger subscriber base, better margins, faster ad-tier growth than any of them. That comparison is real, and it's also not the one that should worry a long-term holder most.

Amazon Prime Video isn't trying to win the streaming P&L. It's a retention cost center for Amazon's retail and logistics business, which means it can spend on content and sports rights without ever needing to earn that spend back on a standalone basis.

In 2026 that shows up as an 11-year, $1.8 billion-per-season NBA deal, existing NFL Thursday Night Football rights, and UEFA Champions League rights across three major markets — $3.8 billion in total sports spend, 27% of everything streamers collectively spend on live sports, the largest single share of any platform. Netflix, run for streaming profitability, structurally cannot match that dollar for dollar and stay disciplined at the same time.

Netflix's two most dangerous long-term competitors don't show up on any subscriber leaderboard, because neither one is trying to win that contest.

YouTube is the sharper long-term problem. It already leads Netflix on the metric that increasingly matters more than subscriber counts: TV-screen watch time. YouTube captured 12.7% of all US TV viewing in January 2026 versus Netflix's 9.0%, and the gap is widening — roughly three more minutes per adult per day in 2026 than the year before. It does this with a free, ad-supported, algorithmically infinite library and none of Netflix's content-licensing cost structure.

Reed Hastings, on his way out the door, named the risk himself, and it's worth stating plainly rather than softening: AI-generated content on YouTube becoming "cool and sexy" enough to substitute for the reason people pay for premium streaming at all. Netflix's own SEC filings now disclose generative AI as an operational risk, and industry estimates put potential production-cost deflation from AI tools at 10-30% — a double-edged sword that could lower Netflix's own costs just as easily as it arms free-content competitors, and nobody, including Netflix, knows yet which way that cuts over a full decade. That's an honest "insufficient data," not a hedge.

Management's Scorecard: One Big Win, One Real Failure

Judge Netflix's co-CEOs, Ted Sarandos and Greg Peters, on the decisions that actually moved money, and the record is genuinely mixed — not uniformly good, not uniformly bad.

The WBD walk-away is the clearest evidence of capital discipline in this whole picture. Netflix bid $82.7 billion for a real, strategically important asset, lost to a $110.9 billion offer, and didn't chase. It took the $2.8 billion breakup fee and moved on rather than escalate a bidding war it would have had to overpay to win. That's the decision a disciplined capital allocator makes, and it's rarer in media M&A than it should be.

Set against that: gaming. Four years of building internal studios via acquisition, then shutting most of them down, now on a third "cloud-first, TV-based" reset — explicitly reframed by management as a retention tool, not a revenue driver, because no revenue thesis has ever worked. That's a repeated pattern of capital committed and abandoned, and it's the clearest management-quality flag in the whole analysis.

The $25 billion buyback sits awkwardly between those two data points. It's larger than Netflix's entire annual content budget, funded partly by the WBD termination-fee windfall, and it reads two ways depending on how charitable you're feeling: either management believes Netflix's own stock is worth meaningfully more than today's price, or management didn't have a clearer organic-growth or M&A use for the cash after the WBD miss and defaulted to buybacks. The data doesn't settle which; both readings are defensible, and the buyback itself confirms nothing about whether it was well-timed.

One more thing worth naming plainly: Netflix stopped disclosing quarterly subscriber counts and regional ARPU in 2025. That's a real reduction in shareholder transparency, not a red flag of dishonesty, but it means the market is increasingly taking Netflix's word for growth metrics it used to be able to verify independently.

What Changed

None of this resolves into a clean verdict, and it shouldn't — the data doesn't support one.

Netflix is a better business today than it was three years ago on almost every measure that matters: margins, cash generation, pricing power, and a genuinely fast, well-evidenced pivot into advertising that de-risks the "what's next" question more convincingly than anything else in this analysis. The 2026 drawdown is real and explainable, not a market malfunction, and it has already repriced a meaningful amount of known risk relative to where the stock traded at its post-split high.

What it hasn't done is make Netflix cheap. The stock still carries a clear premium to Disney on every multiple, a more nuanced but real premium to Amazon, and a three-scenario spread where the downside case requires nothing more dramatic than mediocre execution to show up. And the two competitors capable of doing the most long-term damage — Amazon's bottomless loss-leader capital and YouTube's free, ad-only attention dominance — sit entirely outside the arena where Netflix's own execution has been winning.

That's the shape of the thing: a wonderful business, priced for continued perfection, working through a real scare that hasn't yet turned it into a wonderful price.

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Sources: Netflix Investor Relations, SEC 8-K/10-K/10-Q filings, stockanalysis.com, CNBC, Yahoo Finance, Motley Fool, Variety, Deadline, Nielsen's "The Gauge," arXiv 2511.07280 ("The Value of Personalized Recommendations: Evidence from Netflix"), Ark Invest, and the underlying research package (business model, financial/valuation, industry/competitive, and risk/management analysis, dated 2026-07-11). This article is LLM-assisted, disclosed per site policy, and does not constitute financial advice or a recommendation to buy or sell any security.