Goldman Sees Opportunity After Recent Decline

Netflix has been upgraded to “Buy” by Goldman Sachs following an 18% decline in its share price over the past six months. The pullback, partly driven by uncertainty surrounding a previously proposed acquisition of Warner Bros. Discovery assets, is now being viewed as an attractive entry point.

With the deal now abandoned—and a $2.8 billion termination fee secured—analysts believe Netflix can refocus on its core business. The shift back to a “standalone execution story” is expected to restore investor confidence and potentially trigger upward revisions in earnings forecasts.

From a valuation perspective, Netflix currently trades at a price-to-earnings-to-growth ratio of around 1.1x, significantly below its historical average. This compression suggests that much of the recent uncertainty may already be priced in.

Advertising and Pricing Power Fuel Growth Outlook

A key pillar of the bullish thesis is Netflix’s evolving revenue model. Beyond subscriber growth, the company is increasingly leveraging advertising as a meaningful driver of future earnings.

Goldman projects advertising revenue to grow from approximately $1.5 billion in 2025 to nearly $9.5 billion by 2030. This rapid expansion reflects both increasing adoption of ad-supported tiers and the broader shift toward hybrid monetization models in streaming.

In parallel, Netflix’s pricing strategy continues to support revenue growth. Recent price increases across U.S. subscription tiers are expected to generate an additional $3 billion in cumulative revenue over 2026 and 2027.

This combination of subscriber expansion, higher revenue per user, and advertising scale positions Netflix for sustained low double-digit revenue growth over the next several years.

Margins, Cash Flow, and Capital Returns Strengthen the Case

Beyond top-line growth, analysts highlight improving profitability as a major catalyst. Netflix is expected to deliver approximately 250 basis points of annual operating margin expansion over the next three years, supported by more disciplined content spending and operational efficiencies.

Free cash flow is also a key component of the investment case. Management’s guidance of around $11 billion in free cash flow for 2026 is seen as potentially conservative, particularly after stepping away from large-scale M&A activity.

This financial strength enables significant shareholder returns. Since 2023, Netflix has repurchased approximately $21 billion in shares, representing about 90% of its annual free cash flow. Goldman outlines a scenario where the company could repurchase 20% to 25% of its market capitalization over the next five years, providing a meaningful boost to earnings per share.

Outlook: A Re-Rating Opportunity With Execution Risks

Looking ahead, Netflix’s trajectory will depend on its ability to execute across multiple fronts—scaling advertising, maintaining subscriber growth, and delivering consistent margin expansion.

While the current valuation suggests upside potential, risks remain. Competition in the streaming industry is intensifying, and sustained growth will require continued innovation in content, pricing, and platform engagement.

However, with the overhang of M&A uncertainty removed and fundamentals strengthening, the company appears positioned for a potential re-rating if execution remains on track.