Netflix: A Valuation Update

Incredible business, long runway, and still a cheap stock

The last time I posted an update to my valuation of Netflix (Netflix: A Valuation Discussion, November 2023), I shared the several long-term scenarios and the following valuation summary exhibit:

For newer readers, I like to model several long-term scenarios because the future is uncertain and Netflix has a fairly wide range of outcomes. Then, I discount the cash flows in each scenario to come up with valuations that correspond to each scenario. This helps me get some understanding of what sort of assumptions might be baked in at varying price levels. As you can see above, the five scenarios I modeled last November spit out per-share equity valuations that ranged from $739 per share to $1,393 per share.

It might be natural to wonder how helpful a wide range like that is, but a wide range of outcomes necessarily results in a wide range of present values. To narrow down the range to something that might seem “more helpful” would be narrowing the possible outcomes to a level of forecasting precision that is less realistic. You might be able to do that with more mature businesses but it’s hard to do that with businesses that can realistically grow revenues and cash flows by multiples and potentially double operating margins over time.

Despite the wide range of outcomes and present valuations, the stock price last November was sitting meaningfully below the entire range. That is when I find things are most interesting and am comfortable owning a decent-sized position.

A Valuation Update

I recently updated my Netflix valuation….