Netflix

Thesis

Written 2026-08-23.

Netflix won the first phase of streaming, and I got to buy the winner during a de-rating. The studios that were going to spend their way past it have largely stopped trying to starve it instead: Netflix has a global Pay-One deal with Sony, an expanded Universal arrangement covering live-action films, and a slate of licensed titles from Paramount. Rivals licensing their libraries to the company they were meant to displace is what winning looks like. What is left is the largest subscription entertainment business in the world, with the pricing power that comes from being the one service people will not cancel.

The stock came down a long way, and that is the opportunity. Shares are roughly 41% below their peak, and down about 26% since the start of 2026, and the multiple has compressed from a historical 35-40 times forward earnings to somewhere around 20-24 times. That is not a distressed business being marked down. It is a mature, profitable, cash-generating one being repriced from a growth multiple to something much more ordinary.

The business itself is doing roughly what it said it would. Revenue of $12.6bn, up 13%, in line with the company's own forecast, with the strongest expansion in Latin America and Asia-Pacific — the markets with the most subscribers still to add.

And management is buying it too. Netflix put through a record buyback. A company retiring its own shares at a compressed multiple is management taking the same side of this trade I am, with better information than I have.

What I am actually buying is durability rather than acceleration. A service people keep, that raises prices without losing them, that produces cash reliably, bought at a price that had stopped assuming rapid growth. If it merely stays what it is, that works from here.

What I am watching

I am bullish, and the honest version of this position starts with why the market disagreed.

Growth is decelerating, and the company said so. Revenue grew 13% and guidance implies Q3 growth below 12%. Revenue also came in fractionally under consensus. That is the whole reason for the fall — not a scandal, not a competitor, just a slower number and a forecast of a slower one still. The de-rating is a rational response to that, which means it is not automatically an overreaction.

A multiple halving is the market changing its mind about what kind of company this is. Going from 35-40 times to 20-24 times is a re-rating from growth to mature. If that judgement is right, the cheapness is accurate rather than an opportunity, and the return has to come from earnings rather than from the multiple recovering.

Pricing power is the load-bearing assumption. With subscriber growth slowing, more of the revenue line has to come from charging existing members more. That works until it does not, and the point at which it stops working shows up as churn after a price rise rather than as a warning.

Content spend is the cost of the moat. The library has to keep being refreshed at enormous expense simply to keep people where they are. That is the permanent tax on this business.

A consolidated competitor is being assembled, which cuts against the paragraph above. Paramount agreed in early 2026 to acquire Warner Bros. Discovery, folding Paramount+, HBO Max and Pluto into a single service with roughly 22% of the US streaming market and the Warner franchises behind it — and Netflix bid for those assets and was beaten. I have argued that the competitive question is settled. One buyer assembling that much library in one place is the most credible reason to think it is being reopened, and I would rather have it on the page than discover it in a later quarter.

What would make me wrong

• Revenue growth falling below 10% with no offsetting margin expansion.
• Churn rising after the next price increase, which would say the pricing power has a limit.
• Content spend rising without engagement or revenue following it.
• Growth in Latin America and Asia-Pacific slowing before those markets are properly monetised.

Latest movements

• 2026-08-14 — Opened at $78.49. Untouched since.