NFLX Near 52-Week Low Following SKYD Merger, Earnings & Live Offer Opportunity

George Tsilis (0:04)

All right, welcome back to the Tech Corner. I'm George Tsilis, Senior Markets Contributor with the Schwab Network. Today, we're going to be revisiting Netflix Incorporated. Now, as you may know, Netflix is one of the largest global entertainment companies, distributing television series, movies, documentaries, games, and increasingly live programming to over 190 countries worldwide. The traditional business model is subscription-based, but Netflix now has a growing advertising-supported tier that gives the company the second major revenue stream. The bigger story is that Netflix is evolving beyond traditional on-demand streaming into a broader global entertainment platform, incorporating scripted content, live sports like the WWE, boxing, games, and video podcasts, as well as advertising. The company now reaches an audience, approaching 1 billion people, giving Netflix enormous distribution scale across the globe. Now, Netflix competes with several large media and technology companies throughout the world. Disney competes through Disney+, Hulu, and ESPN, Amazon competes through Prime Video and live sports, and Alphabet, the parent company of Google, competes through YouTube, which is increasingly one of Netflix's biggest competitors for overall viewing time. Comcast competes through NBC Universal and Peacock, and the recent combination of Paramount Skydance and Warner Bros. Discovery creates a significantly larger traditional media competitor with Paramount, CBS, HBO, and Warner Bros. under one organization. Therefore, Netflix not only competes for subscriptions, but also for consumer attention, advertising dollars, premium content, as well as live sports agreement rights. Now from a unique value standpoint, Netflix's biggest competitive advantage is its combination of global distribution, content scale, and its technology.

The company can produce a program in one country and potentially turn it into a worldwide hit almost immediately, and allowing Netflix to spread content costs across a very large international audience. Its recommendation technology is also a major differentiator. Netflix uses viewing data and artificial intelligence to improve content recommendations, search, advertising optimization, and increasingly some production workflows. This gives Netflix an advantage not only in content discovery, but how it creates, distributes, and monetizes entertainment. Now let's look at some recent news on Netflix. Going back to July 16th of this year, the company reported another second quarter solid results where revenue reached approximately $12.56 billion of 13% year-over-year. Operating income reached approximately $4.2 billion of around 11%, while operating margin actually remained very strong at 33.4%.

On a diluted basis, EPS came in around 80 cents a share, but the main issue with the price action is not necessarily profitability, it's the rate of growth. Revenue growth is actually slow despite beating the estimates from roughly 18% late last year towards the low teens today. And management's Q3 outlook suggests another modest deceleration. For all of 2026, Netflix expects revenue between $51 billion and $51.4 billion, representing roughly 13% to 14% year-over-year growth. While at the same time, operating income is expected to increase by more than 20%.

So despite the fact that revenue growth is moderating, profitability keeps expanding faster than sales. That's important for price.

Advertising remains one of the most important catalysts for Netflix. The company generated more than $1.5 billion in advertising revenue in 2025 alone, and management expects that figure to roughly double in 2026 to nearly $3 billion.

Live programming is another emerging opportunity. Netflix also recently decided not to increase its offer for Warner Brothers. After management concluded that a higher price no longer made financial sense at all, that decision reduced the acquisition integration risk and allowed Netflix to focus on organic sales and share repurchases while benefiting from an approximately $2.8 billion termination fee. Now let's take a look at some other positives with the company. Netflix now carries events like the NFL games, WWE, boxing and selected baseball programming, which can attract new subscribers while creating premium advertising inventory. The company remains one of the most profitable businesses in global entertainment. If you look at operating margins, they are above 30% and earnings are growing faster than revenue. Once again, that's important in terms of how the price action of the stock develops. Advertising provides a meaningful second growth engine, while live sports and events give Netflix additional ways to attract subscribers and advertisers. The company, as I mentioned, also retains enormous global distribution and strong pricing power.

They can increasingly monetize the same audience through subscriptions, advertising, pricing, as well as live events, which should help support earnings growth even if traditional membership growth starts to slow. Lastly, to support the stock price, the company has also resumed aggressive share repurchases, authorizing another $25 billion share buyback program, which becomes increasingly meaningful with the stock trading well below its previous highs. Now, from a valuation standpoint, with the stock around $70 to $71, the market capitalization is close to $300 billion.

The stock trades approximately 19.4 times for earnings, compared to the sector meeting around 13 times. So, NFLX still trades at a premium relative to the broader sector. However, this multiple is well below the company's 5-year average of approximately 35 times earnings. Forward revenue growth is also approximately 13.5%, while forward EBITDA growth is approximately 22%.