Netflix: a 21% P/E discount to peers for the highest operating margin in the set
Netflix trades at 17.8x consensus forward earnings, 21% below the 22.6x peer median, despite a 34.6% operating margin against 13.7% for peers5 (source: yfinance peer statistics and analyst targets, 22 October 2026). The peer-median multiple on our FY27E EPS of $3.87 gives $87.5. We initiate at Buy with an $88 target, 31% above the $67.05 price.
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Key takeaways
- The FY27E EPS slowdown is an artefact of the $2.8bn WBD fee: adjusted EPS grows 16% in FY26E and 26% in FY27E, against consensus growth of 5.1%4 (source: yfinance consensus estimates and earnings history, 22 October 2026).
- Advertising is the second engine: we estimate $5.7bn of ad revenue by FY28E, worth $8.54 a share, about 10% of the target1 (source: Netflix Q3 26 earnings call, 20 October 2026).
- Engagement is holding: Q3 26 revenue grew 11.8% and churn improved globally and in the US1 (source: Netflix Q3 26 earnings call, 20 October 2026).
- We are 2.9% above consensus on FY27E EPS ($3.87 against $3.76), so $18.0 of the $20.5 gap between price and base value is the re-rating4 (source: yfinance consensus estimates and earnings history, 22 October 2026).
- We initiate coverage at Buy with an $88 target, 22.6x FY27E EPS of $3.87 and 31% above the $67.05 price.
Investment thesis
Netflix earns a 34.6% operating margin against a 13.7% peer median, yet trades at 17.8x forward earnings against a 22.6x median5 (source: yfinance peer statistics and analyst targets, 22 October 2026). The FY27E EPS slowdown the market sees comes from the one-off $2.8bn WBD fee; adjusted EPS grows 26%, against consensus growth of 5.1%4 (source: yfinance consensus estimates and earnings history, 22 October 2026). FY27E revenue growth of 11.1% rests on member growth, pricing and advertising, the levers management names for 20271 (source: Netflix Q3 26 earnings call, 20 October 2026). Our EPS is 2.9% above consensus, so the call is the multiple moving from 17.3x to the peer median.
Valuation
We apply the 22.6x six-peer median forward P/E to FY27E EPS of $3.87, giving $87.5, rounded to the $88 target5 (source: yfinance peer statistics and analyst targets, 22 October 2026). EV/EBITDA at the peer median gives $78; the DCF gives $54 at a 10.7% WACC and 3.0% terminal growth, below the price. Bull $106 (26.0x on $4.06 EPS), base $88 and bear $52 (15.0x on $3.48), at 30/50/20 probabilities, give a weighted value of $86.
Our estimates
| Line | FY26E | FY27E | FY28E |
|---|---|---|---|
| Revenue | $51.1bn | $56.8bn | $62.4bn |
| Consensus | $51.1bn | $56.6bn | — |
| Ours vs consensus | +0.0% | +0.3% | — |
| EPS | $3.58 | $3.87 | $4.50 |
| Consensus | $3.58 | $3.76 | — |
| Ours vs consensus | +0.0% | +2.9% | — |
Risks to our view
- The multiple does not re-rate and stays at 17.3x FY27E EPS: −$21 a share against the target.
- Engagement and growth fall short, with 8% growth, a 32% margin and a 15.0x multiple: the $52 bear case, −$36 a share.
- A slate misfire leaves FY27E revenue 2% below plan: −$5 a share.
- The ad product slips again, with FY27 advertising $1.2bn below our $4.2bn estimate after the cut to the 2026 forecast: −$3 a share7 (source: Press reports on Netflix's cut to its 2026 advertising forecast, October 2026).
- Upside risk: growth is confirmed and the stock earns the 26.0x bull multiple on FY27E EPS: +$13 against the target.
Sources
- 1Netflix Q3 26 earnings call, 20 October 2026
- 2Netflix 10-Q for Q3 26
- 3Netflix 10-K for FY25
- 4yfinance consensus estimates and earnings history, 22 October 2026
- 5yfinance peer statistics and analyst targets, 22 October 2026
- 6Netflix Q4 25 earnings call
- 7Press reports on Netflix's cut to its 2026 advertising forecast, October 2026
- 8Netflix H1 26 view-hours disclosure
- 9Netflix 2026 proxy statement (DEF 14A)
- 10Nielsen The Gauge, May 2026
- 11Form 13F holdings for the quarter ended 30 June 2026
- 12Statista worldwide SVOD consumer revenue estimate