Streaming reinvented: Netflix is shaping the next era of entertainment

Executive summary

Market Leadership & Business Model: Netflix is the world’s leading entertainment service, with over 325 million paid memberships across more than 190 countries. The company has transformed from a pure subscription service into a dual-revenue platform, offering a tiered pricing structure that combines a rapidly growing ad-supported plan with standard and premium ad-free tiers.

2025 Financial Performance: Netflix delivered a strong FY25, generating USD 45.2 billion in revenue (up 16% YoY) and expanding its operating margin from 26.7% to 29.5%. Fourth-quarter results exceeded expectations, with revenue of USD 12.05 billion (up 18% YoY) and diluted EPS rising 30.2% to USD 0.56.

Strategic Growth & Acquisition: The proposed USD 82.7 billion all-cash acquisition of Warner Bros. Discovery’s “crown jewels”, including HBO, HBO Max and its major studios, serves as a strategic accelerant by securing nearly a century of iconic IP such as Harry Potter and Game of Thrones while turning recurring licensing costs into durable asset ownership. This targeted move avoids declining cable assets and leverages the combined library to transform Netflix into an indispensable household platform that strengthens both subscriber acquisition and retention.

Next Phase of Growth: Netflix’s advertising business is its fastest-growing segment, with 2025 revenue increasing 2.5x to over USD 1.5 billion. Management expects ad revenue to double again in 2026 to around USD 3 billion, driven by an in-house ad-tech platform and new interactive ad formats. The company is also boosting engagement through live sports (e.g., WWE Raw, NFL) and an expanding portfolio of over 100 mobile game titles.

Valuation and Upside Potential: Trading at 25X forward PE, well below its five-year average of 37X, Netflix’s recent sell-off offers an attractive entry point and a margin of safety amid acquisition-related uncertainty. Applying a fair PE of 30 times to projected 2027 earnings yields a target price of USD 114, implying upside of approximately 43% from current levels.

Netflix Inc (NASDAQ: NFLX) has recently faced a turbulent period, with shares down approximately 40% from its all-time high of USD 133.9 on 30 June 2025. The stock began its sell-off in July 2025 amid intensifying competition and valuation concerns, before declining further after a disappointing third-quarter earnings report. Earnings per share (EPS) missed expectations by around 15%, largely due to a one-time USD 619 million tax settlement in Brazil.

These near-term earnings pressures have been compounded by growing investor unease over Netflix’s strategic direction, particularly its ambitious USD 82.7 billion pursuit of Warner Bros. Discovery’s content and studio assets. While the transaction would add globally recognised franchises such as Harry Potter and Game of Thrones to Netflix’s portfolio, concerns surrounding the scale of the all-cash financing, heightened regulatory scrutiny, and execution risk have weighed on sentiment. Combined with conservative 2026 guidance and persistent industry competition, investor positioning has turned increasingly cautious.

However, we remain constructive on Netflix, as the recent sell-off appears to overstate near-term risks while underappreciating the company’s long-term monetisation opportunities.

Company overview

Netflix, Inc. is the world’s leading entertainment service, operating a subscription-based streaming model that offers TV series, documentaries, feature films, and mobile games across a wide variety of genres and languages. As of Q4 2025, the company serves over 325 million paid memberships in over 190 countries. The platform allows members to watch as much as they want, anytime, anywhere, on any internet-connected screen, playing a pivotal role in the global shift from linear television to on-demand consumption.

Business model

Unlike traditional media companies that rely on a mix of theatrical box office, linear TV affiliate fees, and licensing, Netflix has historically derived nearly all its revenue from monthly subscription fees. However, since late 2022, the company has diversified into advertising, creating a dual-revenue stream model that allows it to maximise revenue across different consumer segments.

The company currently offers three primary tiers in most major markets: Standard with Ads, Standard, and Premium. Following the phasing out of the "Basic" ad-free tier in early 2025, Netflix has successfully nudged price-sensitive users toward the ad-supported tier, which is monetised through both a lower monthly fee and ad revenue.

Table 1: Netflix subscription plans in the US

Subscription Plan	Primary Features
Standard with Ads	·       Ad-supported, all games and most movies and TV shows are available ·       Watch in 1080p (full HD) on 2 supported devices at a time ·       $7.99/month
Standard	·       Unlimited ad-free movies, TV shows, and games ·       Watch in 1080p (full HD) on 2 supported devices at a time ·       $17.99/month ·       Add 1 extra member for $6.99/month with ads or $8.99/month without ads
Premium	·       Unlimited ad-free movies, TV shows, and games ·       Watch in 4k (Ultra HD) + HDR on 4 supported devices at a time ·       $24.99/month ·       Add up to 2 extra members for $6.99 each/month with ads or $8.99 each/month without ads
Source: Netflix website. All prices are in USD and applicable only to users in the US. Data as of 23 January 2026.

Beyond subscriptions and advertising, Netflix has expanded into live events and sports, securing streaming rights to properties such as NFL Christmas Day games and WWE Raw.

To deepen engagement and extend the life of its Intellectual Property, Netflix has also aggressively expanded its gaming portfolio. By early 2026, the service offered over 100 mobile game titles, including a multiplayer Squid Game title. Furthermore, the opening of "Netflix House" locations in Dallas and Philadelphia signals a move to compete with Disney in the "experience economy," using themed dining and shopping to build brand loyalty outside of the digital screen.

Netflix’s revenue is well-diversified geographically, with more than 55% coming from markets outside the US and Canada.

Figure 1: Netflix reports revenue across four geographic regions

Latest Earnings Highlight: Q4 2025

Netflix reported fourth-quarter 2025 results on January 20, 2026. Revenue hit USD 12.05 billion, an 18% increase year-over-year, driven by a combination of healthy membership growth, price increases in key markets, and the scaling of the advertising business. The company also saw strong growth across all regions, with LATAM leading on an FX-neutral basis.

Table 2: Netflix’s 4Q25 financial highlights

	4Q24	4Q25	Beat/Miss vs Estimate	YoY change
Revenue	10,247	12,051	0.7%	17.6%
Operating Income	2,273	2,957	2.5%	30.1%
Operating Margin	22.2%	24.5%	1.2%	2.3 pts
Net Income	1,869	2,419	2.1%	29.4%
Diluted EPS	0.43	0.56	2.6%	30.2%
Free Cash Flow	1,378	1,872	28.2%	35.8%
Source: Netflix 4Q Letter to Shareholders, Bloomberg. Data as of 20 January 2025. Figures are in USD millions except percentages and per share amounts.

Table 3: Regional breakdown of 4Q25 revenue growth

	UCAN	EMEA	LATAM	APAC
YoY % Growth	18%	18%	15%	17%
FX Neutral YoY % Growth	18%	15%	20%	19%
Source: Netflix 4Q Letter to Shareholders, Bloomberg. Data as of 20 January 2025. F/X Neutral revenue growth assumes foreign exchange rates remained constant with foreign exchange rates from the prior-year period.

For the full year 2025, the company delivered USD 45.2 billion in revenue. Operating income for FY25 grew roughly 28% year-over-year, with the operating margin expanding to 29.5%, up from 26.7% in 2024. This expansion occurred despite significant investments in live broadcasting infrastructure, its proprietary ad-tech stack, and gaming. The advertising business, in particular, saw its revenue grow more than 2.5x compared to 2024, reaching over USD 1.5 billion in only its third year of operation.

The company surpassed 325 million paid memberships, adding approximately 23 million net new adds in 2025. While this represents a slowdown from the 41 million added in 2024 (which was inflated by the password-sharing crackdown), it remains a healthy organic growth rate in a saturated market.

Looking ahead, management expects 2026 revenue to grow by 12–14% year-on-year to USD 50.7–51.7 billion, driven in part by ad revenue that is projected to roughly double. Operating margin is forecasted to expand by two percentage points to 31.5%, even after factoring in an estimated 0.5 percentage point drag from expenses related to the pending Warner Bros. acquisition.

Proposed acquisition of Warner Bros

In December 2025, Netflix announced its plans to acquire Warner Bros. Discovery’s film and television studios, cable network HBO, and its streaming service HBO Max for an enterprise value of approximately USD 82.7 billion. While the original agreement proposed a mix of USD 23.25 in cash and USD 4.50 in Netflix stock per share, this was amended in January 2026 to an all-cash transaction valued at USD 27.75 per WBD share.

To fund the purchase, Netflix has entered a USD 5 billion senior unsecured revolving credit facility, a USD 20 billion senior unsecured delayed draw term loan and secured USD 42.2 billion in aggregate bridge facility commitments to support the transaction. It intends to reduce the bridge facility commitments prior to closing through a combination of future bond offerings and accumulated cash. The company has also paused its share buyback program to accumulate cash. The deal is expected to close within 12 to 18 months from the initial December 2025 announcement, subject to regulatory and shareholder approvals.

Table 4: Breakdown of Netflix’s financing of the WB acquisition

	Funding sources
Netflix’s cash on hand	$9.0
Acquisition debt	$63.0
WB net debt	$10.7
Enterprise value of WB	$82.7
Source: Netflix-WB December presentation deck, Netflix 4Q25 letter to shareholders,  iFAST calculations Data as of 20 January 2025 in USD Billions

At the same time, Paramount Skydance announced a USD 108.4 billion all-cash hostile offer to acquire all of Warner Bros. Discovery, including its linear networks. The WBD Board has unanimously rejected the proposal, describing it as a highly risky leveraged buyout. As noted by the board, a company with a market capitalization of just USD 14 billion (as of December 2025) is attempting an acquisition that would require USD 94.65 billion in debt and equity financing—nearly seven times its total market value. By contrast, Netflix has a market capitalisation exceeding USD 300 billion, making it a far more financially capable partner.

Industry overview

According to Mordor Intelligence, the global video streaming market is projected to grow from an estimated USD 212.8 billion in 2026 to USD 356.2 billion in 2031, representing a CAGR of 10.85%. This growth is supported by factors such as the rapid extension of high-speed broadband and 5G, and the rising popularity of live sports and event streaming.

The industry’s growth is increasingly underpinned by technological advancements that improve the bitrate and accessibility of streaming. The rollout of affordable 5G networks has transformed consumption patterns, particularly in emerging markets like India and Brazil, by enabling continuous HD and 4K streaming on mobile devices without buffering. Furthermore, advances in Content Delivery Networks (CDNs) and edge computing have significantly reduced latency and improved stream reliability, lowering the technical barriers to live sports for platforms like Netflix.

Streaming reached a historic milestone in May 2025. According to Nielsen’s "The Gauge," streaming usage accounted for 44.8% of total US TV time in May 2025, surpassing the combined share of broadcast (20.1%) and cable (24.1%) for the first time. This record was eclipsed in December 2025, with streaming’s share growing to a record 47.5%. That said, Netflix’s share of TV time remains below 10% in the major markets in which the company operates.

Competitive landscape

Netflix remains the largest subscription streaming service globally, but the competitive environment has evolved from the early “streaming wars” into a broader contest for viewer time and attention across diverse platforms. Traditional entertainment giants and tech platforms alike now vie with Netflix not just for subscriptions, but for total TV and screen engagement.

Disney continues to be Netflix’s primary traditional streaming competitor with its portfolio of Disney+, Hulu, and ESPN+, leveraging iconic IP and franchise strength. However, legacy linear networks like ESPN and ABC face secular audience declines as viewers shift toward digital platforms, creating strategic pressure to evolve beyond traditional television distribution.

Amazon Prime Video is another major rival, though it approaches video differently: Prime Video is part of a broader Amazon Prime ecosystem, using streaming as a value driver for Prime membership rather than a standalone subscription. Amazon’s deep financial resources allow continued investment in high‑profile rights such as NFL Thursday Night Football and NBA games, strengthening its sports and live content offerings. Despite having a smaller TV viewership share compared with Netflix and YouTube, Prime Video’s bundling with e‑commerce and extensive global subscriber base give it a competitive edge in content reach and retention.

YouTube has become one of Netflix’s most formidable competitors for viewer attention, particularly on TV screens. Recent Nielsen data indicate that YouTube accounts for roughly 12–13% of total US TV viewing time, surpassing Netflix’s ~8–9% and making it the platform with the highest overall watch time. Its wide mix of user-generated content, long-form videos, and ad-supported revenue models allows YouTube to scale globally, giving it structural advantages in both engagement and monetisation.

Table 5: Netflix’s US market share

Streaming platforms in the US	Market Share
Netflix	20%
Amazon Prime Video	19%
Disney+	14%
HBO Max	13%
Hulu	12%
Apple TV	9%
Paramount+	5%
Peacock	2%
STARZ	1%
Others	5%
Source: JustWatch. Data as of Q4 2025

Investment thesis

The Warner Bros "crown jewel" acquisition

The proposed acquisition of Warner Bros. Discovery’s studio and streaming assets represents a transformative strategic move that, in our view, the market is currently assessing with excessive pessimism.

Unlike Paramount Skydance’s ongoing hostile bid to acquire the entirety of Warner Bros. Discovery, including its linear networks, Netflix is proposing a highly selective, surgical acquisition of Warner Bros. Discovery’s “crown jewels.” Under this structure, Netflix would acquire Warner Bros. Pictures (theatrical), Warner Bros. Television (production), HBO, and HBO Max, while leaving the legacy ad-supported cable networks (such as TNT, TBS, and CNN) to be spun off into “Discovery Global.” This allows Netflix to secure ownership of some of the most valuable intellectual properties (IP) in global entertainment such as Harry Potter, Game of Thrones, and the DC Universe, without assuming exposure to secularly declining cable television assets.

The proposed acquisition of Warner Bros. Discovery’s streaming and studio assets for USD 82.7 billion is a "strategic accelerant" that widens Netflix’s competitive moat. The deal effectively purchases nearly a century of irreplaceable IP. Replicating a franchise portfolio of this scale and cultural relevance organically would require decades and tens of billions of dollars, with no certainty of success. By integrating HBO’s premium, prestige-driven library with Netflix’s global, high-volume originals engine, the combined platform becomes closer to an indispensable household utility, strengthening both subscriber acquisition and retention. A user may join for House of the Dragon (HBO) but stay for Squid Game (Netflix).

The transaction could also meaningfully improve Netflix’s cost structure. Today, Netflix spends billions annually licensing second-run content. Ownership of the Warner Bros. library—including Friends, The Big Bang Theory, and Harry Potter—reduces long-term reliance on third-party licensors and converts recurring licensing expenses into durable asset ownership. This enhanced content sovereignty lowers exposure to future licensing cost inflation. In addition, management expects at least USD 2–3 billion in annual cost synergies by the third year post-closing, driven by overlapping corporate functions and technology stack rationalisation, with the transaction expected to be accretive to GAAP earnings by year two.

Concerns around the USD 10.7 billion of assumed net debt and the USD 72 billion equity purchase price overlook Netflix’s strong cash-generation profile. On a pro forma basis, Free Cash Flow is expected to exceed USD 10 billion annually post-merger, providing significant capacity for deleveraging. While leverage will be elevated at close, management has articulated its commitment to maintaining a strong balance sheet and preserving its solid investment-grade credit ratings. They expect to bring leverage back within rating agency thresholds for current ratings within two years through disciplined debt reduction.

Additionally, we do not expect Paramount’s hostile bid to succeed, given WBD’s board’s strong preference for Netflix’s financial stability and the limited shareholder response to Paramount’s original tender offer, with only about 6.8% of WBD’s outstanding stock tendered by the January 21 deadline. Paramount has since extended the deadline to February 20, but the low level of participation so far further reinforces the board’s control over the outcome and makes the hostile bid unlikely to prevail.

Advertising is Netflix’s next leg of growth

Netflix entered the advertising market in 2022 to address slowing subscriber growth and diversify its revenue base. Since then, its advertising business has scaled rapidly and is now the company’s fastest-growing segment. In 2025, ad revenue grew approximately 2.5x year-on-year to over USD 1.5 billion, and management expects advertising revenue to double again in 2026 to around USD 3 billion.

Although advertising accounted for only around 3% of total revenue in 2025, its strategic importance should not be underestimated. There remains a gap between Average Revenue per Member (ARM) on the ad-supported tier versus the standard ad-free plan, but this gap is expected to narrow as Netflix enhances its ad capabilities and increases the monetisation of its ad inventory.

Netflix has transitioned from its initial reliance on Microsoft for ad delivery to an in-house first-party ad tech platform. This gives Netflix greater control over targeting, measurement, and ad formats, while also enabling faster product iteration compared to third-party solutions. Importantly, owning the ad stack allows Netflix to retain a larger share of advertising economics, supporting higher long-term margins

Netflix is expanding its advertising capabilities through new formats and improved targeting. By the second quarter of 2026, the company plans to roll out interactive video ads globally. These modular ad formats allow advertisers to dynamically mix and match creative elements using flexible templates, improving engagement and creative efficiency. Over time, Netflix intends to deepen its use of first-party data—such as viewing history and content preferences—to help advertisers plan campaigns more effectively in a privacy-compliant manner. This includes targeting by content genre, demographics, and “in-market” behaviors (for example, users actively shopping for a luxury vehicle).

In parallel, Netflix is deploying Generative AI tools to support advertisers. These include AI-assisted ad creation using Netflix intellectual property, automated workflows for ad concepts, and AI-driven campaign planning, all of which lower creative friction and enhance the platform’s appeal to brand advertisers.

To ensure strong demand for its growing ad inventory, Netflix has integrated its supply with major third-party demand-side platforms (DSPs), including The Trade Desk and Google Display & Video 360, with additional integrations added in 2025 such as Yahoo, Amazon, and AJA. This allows advertisers to access Netflix inventory programmatically, broadening the buyer base and improving fill rates.

Structurally, Netflix is also well positioned to benefit from the ongoing decline of linear television. As audiences increasingly reject the high cost and inflexibility of traditional pay-TV bundles, advertising budgets that once supported broadcast and cable TV are migrating toward Connected TV (CTV) platforms such as Netflix, Prime Video, and YouTube.

According to Comscore’s 2025 State of Streaming report, ad-supported viewing now accounts for 45% of total Netflix household viewing hours, up from 34% a year earlier, underscoring the rapid adoption of the ad tier. As ad-supported tiers gain traction across the streaming industry, advertising is likely to evolve from a supplemental revenue stream into a primary driver of margin expansion for Netflix—particularly in saturated markets such as the US and Canada, where subscriber growth is inherently limited.

Beyond monetisation, the ad-supported tier also plays a strategic role in managing churn. The ad tier acts as a catch-all option for price-sensitive users, allowing Netflix to retain subscribers who might otherwise churn as prices on the Premium and standard ad-free tiers increase over time.

Reducing churn through live entertainment and games

To reduce subscriber churn in a competitive streaming market while unlocking high-value advertising opportunities, Netflix has continued to expand into live entertainment.

Live sports and entertainment provide Netflix with a unique retention tool. Unlike scripted series that can be binge-watched and subsequently canceled, live events create appointment viewing. For example, WWE Raw’s move to Netflix in 2025 delivers 52 weeks of live, drama-filled content, ensuring wrestling fans are incentivised to remain subscribers to avoid missing weekly episodes. Similarly, marquee events such as Anthony Joshua’s sixth-round knockout of Jake Paul and NFL Christmas Day games generate disproportionate excitement and signups, despite representing a small share of total viewing hours. These high-impact events drive engagement spikes that can translate into longer-term subscriber retention.

Live programming also provides premium advertising inventory, complementing Netflix’s broader ad strategy. High-attention, unskippable moments like NFL games or major wrestling events attract advertisers willing to pay top dollar for exposure, creating a new revenue lever beyond subscription growth.

Netflix is also expanding live content beyond sports and into international markets. The upcoming World Baseball Classic in Japan marks Netflix’s first major local live event outside the US, opening opportunities for subscriber growth and retention abroad. Non-sports live programming, including interactive shows such as Star Search with live voting and stunt-based events like Skyscraper Live, further diversifies Netflix’s live slate and reinforces its strategy of delivering culturally relevant, real-time entertainment.

Beyond live entertainment, Netflix is also leveraging gaming to deepen user engagement and enhance retention. Its library includes popular mainstream titles, such as Grand Theft Auto, alongside games based on Netflix’s own IP, including Squid Game: Unleashed. In late 2025, Netflix expanded into cloud-based gaming, allowing members to play directly on their TVs using a mobile phone as a controller. While these games are currently offered free as part of the subscription, future opportunities exist to grow engagement and monetization through in-app purchases or advertising.

The recent selloff has opened up an attractive investment opportunity

The recent sell-off in Netflix shares presents an attractive opportunity for investors to gain exposure to a company that has historically traded at high multiples. Netflix is currently trading at approximately 25X forward PE, below its five-year average of 37X and ten-year average of 71X.

We have assigned a fair PE of 30X, reflecting a conservative discount to historical levels given the uncertainty surrounding the Warner Bros. acquisition, while still recognising Netflix’s dominant market position and projected double-digit earnings growth. Applying this multiple to projected 2027 earnings, we derive a target price of USD 114, implying an upside of 43% from current levels.

Table 6: Projections for Netflix’s earnings

Netflix	2024	2025	2026E	2027E
Earnings Per Share (EPS)	2.0	2.5	3.2	3.8
Earnings Growth YoY	58.9%	29.6%	24.0%	20.6%
PE Ratio (X)	40.8	31.5	25.4	21.0
Target Price (based on a fair PE of 30X)				114
Upside Potential				42.6%
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 3 February 2026

Figure 2: Share prices are driven by earnings growth in the long run

Investment risks

Acquisition and integration risks of Warner Bros.

The acquisition is subject to intense regulatory scrutiny from the US Department of Justice and the European Commission, as a merger between the #1 (Netflix) and #3 (HBO Max) streaming platforms could materially reduce competition and harm consumers and producers. While management has positioned the transaction as “pro-consumer” and “pro-worker,” regulatory approval remains a key uncertainty. Should the deal be blocked, Netflix may be required to pay a USD 5.8 billion break-up fee to Warner Bros., which would meaningfully dent its cash reserves.

That said, failure to complete the acquisition would not represent a structural break for Netflix’s long-term growth. The company retains multiple organic growth levers, including advertising, live entertainment, and gaming. Rather, the acquisition should be viewed as an opportunity to accelerate growth rather than a necessity for it. Notably, CFO Spence Neumann highlighted during the Q4 earnings call that even after the acquisition closes, approximately 85% of the combined company’s revenue would still be derived from Netflix’s existing core business.

Beyond regulatory risk, execution and integration challenges remain material. Warner Bros.’ creative culture—particularly HBO’s prestige-driven, creator-led approach—may not fully align with Netflix’s data-driven, technology-centric operating model. Any failure to retain key creative talent at Warner Bros. could dilute the value of the acquired intellectual property.

Intensifying competition

Netflix faces intensifying competition not only from traditional streaming rivals like Disney but also from tech platforms vying for users’ time and attention, such as YouTube, TikTok, and Instagram. The rise of user-generated content and evolving consumption habits among Gen Z and Gen Alpha could limit Netflix’s long-term total addressable market, as premium scripted content competes against highly engaging, short-form alternatives across multiple platforms.

Macroeconomic headwinds

Netflix is exposed to macroeconomic cycles, particularly through its advertising revenue. A global economic downturn could pressure advertising spending, potentially causing the USD 3 billion ad revenue target to fall short. While streaming subscriptions tend to be resilient, tighter consumer wallets could increase churn, especially among lower-income households.

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in Netflix Inc.