QS Research · Michael Burry's Scion Capital analyst template · 2006
NETFLIX INC (NFLX)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case +0% · downside -17% · upside +19%
At $63.85 the market capitalizes TTM-to-Sep-2026 EBIT of $15.56B at 17.3x EV/EBIT and FCF of $11.38B at a 4.3% yield; on the given 14x-20x EV/EBITDA peer range the value is $52.7-$76.0, so the base case is roughly today's price. The market is not missing a broken business—Q3'26 operating income rose 37% to $4.46B on $12.87B revenue—but it is pricing slower growth, an ad guide cut to ~$2.7B and an engagement/content reset. With base ~0%, downside -17% and upside +19%, risk/reward is ~1:1 and fails the long/short rule. This is a watch, not a pass, because the 10-year-low multiple could misprice durable FCF if ad/engagement stabilizes, but there is no margin of safety yet.
Key numbers
- Share price: $63.85
- Market cap: $262.21B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $49.73B
- EV / EBITDA (TTM): 16.9x
- P/E (TTM): 17.8x
- Price / book: 8.95x
The 15 boxes
- ✓ 1. Long-form business notes
Netflix is a single operating segment that earns primarily monthly membership fees for streaming content: FY2025 revenue was $45.18B and operating income $13.33B, versus $25.00B and $4.59B in FY2020. Between the FY2020 and FY2025 Item 1 descriptions, the service moved from approximately 204 million paid memberships, an ad-free pitch and a U.S. DVD-by-mail business to TV series, films, games, live programming, multiple pricing plans including ad-supported, and no membership count in Item 1. Cash generation scaled with the business: FY2025 operating cash flow $10.15B versus $2.43B in FY2020, capex $688.2M versus $497.9M, and buybacks $9.13B versus $0. Operating income exceeded pre-tax and net income in every year FY2020-FY2025, so the net income figures are not flattered by a one-off above operating earnings.
- ✓ 2. Competitive advantage
The advantage is scale in a business whose biggest cost (content) is largely fixed: operating income went from $4.59B (FY2020) to $13.33B (FY2025) on revenue of $25.00B to $45.18B, and operating cash flow went from $2.43B to $10.15B against only $688.2M of FY2025 capex. The durable assets named are intellectual property (trademarks, copyrights, patents, proprietary technology) and original/exclusive programming, not network effects or switching costs. The 10-K itself stresses that consumers hold several entertainment sources at once and cancel easily, and that rivals have long histories, big libraries and large financial resources, so the moat is a cost/scale and content-spending one, not a lock-in one.
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended 2026-09-30) was a clean operating beat: revenue $12,874.2M, +12% reported/+11% constant currency, operating income $4,458.6M (+37%) and operating margin 34.6% vs 28.2%, with net income of $3,663.9M (+44%) driven by the $1,210M operating income increase, not a one-off. Read the margin jump with care: Q3 2025 carried a $619M Brazilian non-income-tax charge, so over half the 6.4-point gain is a prior-year comparison artifact, not pricing/cost improvement. The nine-month figures are contaminated by one-offs — a $2.8B WBD termination fee in interest and other income and ~$85M of WBD financing-termination costs in interest expense — so use operating income and Q3 cash flow, not YTD net income. Cash fell $841M to $8,226.5M after $10.7B of buybacks in 9M 2026; the 10-Q contains no quantitative forward guidance.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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