Netflix (NASDAQ: NFLX), as one of the leaders in global video streaming services, has always been viewed as "expensive" by investors. This perception dates back to the peak of streaming growth in the late 2010s. However, by 2026, Netflix has achieved sustainable profitability and has brought consistent revenues to its shareholders.
Revenue Growth and Advertising Strategy
In the past quarter, Netflix achieved a 13.4% revenue growth compared to last year, reaching $12.6 billion, and the company's total sales have increased by nearly 500% over the past decade. One of the new layers of revenue generation that has recently begun is advertising. Netflix has started to include advertisements, taking advantage of the countless hours customers spend on this platform. This move will help increase revenue, while customers can still opt out of ads by paying an additional fee.
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Positive Developments in Cash Flow and Stock Buybacks
Another reason for investors' hesitation regarding Netflix stock was the lack of positive free cash flow. However, currently, the company's free cash flow has increased to $11 billion over the past 12 months. Netflix is smartly using this cash flow to return capital to shareholders through stock buybacks. In the past quarter, the company spent $4.7 billion on repurchasing shares, reducing the number of outstanding shares by 6% over the past five years.
Given the ongoing growth in streaming and advertising, Netflix is expected to significantly increase its sales in the coming years. Despite competition from other players like YouTube, there is still ample room for many companies to succeed in this space.
Currently, Netflix's stock is considered a cheap option despite a 43% decline from market peaks. The company's price-to-earnings (P/E) ratio is 24, which, although it may seem expensive at first glance, is much cheaper compared to historical levels. If Netflix can pair strong earnings per share growth with double-digit revenue growth, this ratio will decrease in the coming years, likely leading to an increase in Netflix's stock price.
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