Netflix reported its Q3 2026 earnings on October 20, 2026. Following the earnings release, its stock price fell approximately 6% in after-hours trading.
The current share price is $68.69, with a market capitalization of $286 billion. Based on the after-hours decline, its market capitalization would be approximately $270 billion. If the market capitalization falls to $270 billion at the next market open, I believe Netflix’s stock will have initially entered the strike zone.
Fundamentals: Revenue Growth Is Slowing
Revenue for Q3 2026 was $12.874 billion, up 11.8% year over year, primarily driven by subscription revenue, reflecting increases in both membership and pricing.
Revenue growth in Q3 2025 was 17%, indicating a slowdown. This should also be a major factor behind the stock price decline.
Netflix Is a Good Company
Despite intense competition in the streaming industry, Netflix’s financial results show that it remains highly profitable and generates strong cash flow.
Its operating margin was 34.6%, up from 28.2% in Q3 2025.
Net income for the quarter was $3.664 billion, with a net profit margin of 28.5%. For the nine months ended September 30, 2026, net income was $12.348 billion, and free cash flow (FCF) was $9.5 billion, representing an FCF margin of 25.2%.
Another highlight of the third quarter was $4.796 billion in share repurchases. For the nine months ended September 30, Netflix repurchased $10.78 billion worth of shares.
Valuation Perspective
Why do I believe a $270 billion market capitalization puts Netflix in the strike zone? Netflix expects full-year 2026 free cash flow of $12 billion. After deducting $600 million in stock-based compensation (SBC), adjusted free cash flow would be $11.4 billion. Taking a conservative approach and using $11 billion in adjusted FCF, a valuation multiple of 25 times implies a fair market capitalization of approximately $270 billion.
$270 billion is not an exact figure, but from a long-term perspective, I believe this is a price level at which investors are unlikely to lose money.
If Netflix continues to decline, I would set my next buying level at a market capitalization of $250 billion. This would be equivalent to approximately 20 times free cash flow, assuming FCF of $12 billion.
One advantage of Netflix is its relatively high level of financial safety. Although revenue growth is slowing, free cash flow is still growing relatively quickly. In fiscal 2025, revenue grew 15.85%, while FCF increased 36.68%. In other words, incremental free cash flow remains substantial.
If FCF grows 20% in fiscal 2027, that would represent an increase of $2.4 billion. After deducting $600 million in stock-based compensation, the net increase would still be $1.8 billion, which I consider acceptable. In two to three years, adjusted free cash flow reaching $14 billion to $15 billion is a reasonable expectation.
Although growth is slowing, Netflix remains a high-quality business.
