Addressing Key Debates Ahead of 2Q26 Results
CITI’S TAKE
Sentiment on Netflix remains subdued for four reasons: 1) tepid engagement, 2) fears of M&A, 3) lack of catalysts, and 4) enthusiasm for semis, which has put pressure on Netflix. We remain more upbeat. We find the valuation compelling, believe M&A could be positive, and see new tiers as a potential positive catalyst. We maintain our Buy rating.
Drivers of Recent Weakness — We believe four factors have put pressure on Netflix’s share price: 1) tepid viewership, 2) an M&A overhang, 3) perception that Netflix lacks catalysts, and 4) investor enthusiasm for semis, which puts pressure on hyper-scalers and, in turn, pressures Netflix.
We Are More Upbeat — We remain more upbeat: 1) In May, management hinted they may introduce new tiers. This may allow Netflix to segment more effectively, helping top-line growth and reigniting investor interest. 2) We believe M&A has scope to help fortify Netflix’s IP, which should help engagement and improve operating leverage.
2Q26 Expectations — Our forecast suggests Netflix will report 2Q26 results in line with guidance (revenue of ~$12.57 billion, operating income of ~$4.11 billion, and EPS of $0.78). However, we’d note, given recent appreciation of the USD, FX may depress reported revenue by up to ~1%.
3Q26 Outlook — Our forecast suggests NFLX will provide 3Q26 guidance relatively in line with consensus at $13.01 billion of revenue, $4.44 billion of operating income and EPS of $0.84.
FY26 Outlook — Our estimates suggest Netflix remains on track to report FY26 in line with guidance. In FY26, we expect ~$51.6 billion of revenue (vs. guide of $50.7 to $51.7 billion) and ~$16.3 billion of operating income (vs. guide of $16.0 to $16.3 billion).
Lower Target Price — We are reducing our target multiple from 28x to 25x 2027 EPS to reflect multiple compression among hyper-scalers. As such, our target price goes from $115 to $100. We maintain our Buy rating.
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