Netflix delivered a clean third quarter on 20 October and still lost ground. Revenue rose 12% to $12.87bn, in line with expectations. Operating margin reached 34.6%, up from 28.2% a year earlier, and diluted EPS of $0.87 beat the $0.82 consensus. The shares slipped about 6% after hours anyway. The updated Beating The Bull report keeps the rating at Watchlist, with a weighted fair value of about $70 against the $68.69 close before the results.

The bull case: the machine is still printing cash

The quarter carried no one-off gain, and the tax rate added only about a cent to EPS. Free cash flow came to $2.9bn. Netflix spent a record $4.8bn buying back 63.9 million shares, and the diluted share count is down 3.3% in a year. Churn improved year on year, both globally and in the US, and management said the 2026 price rises have gone well. About 1,000 job cuts announced on 14 October should lift margins from 2027, even though management declined to say by how much. On that view, 19 times next year’s earnings looks fair for these margins.

The bear case: the guide and the call pointed the other way

Fourth-quarter revenue is guided to $13.44bn and EPS to $0.67, both below consensus. That makes three quarters in a row in which the next-quarter outlook landed under the street. The 2026 advertising target fell to about $2.7bn from about $3bn, because ad products and partner integrations are rolling out more slowly. The free cash flow outlook fell to $12.0bn from $12.5bn, mainly on a real estate deal.

The bigger issue came on the call. Management conceded that US viewing is not growing as fast as it would like. Members are paying more and leaving less often, but they are not watching much more. Advertising was supposed to be the lever that grows revenue when price rises slow, and it is now running behind plan. A new content chief starts on 26 October.

Where that leaves the rating

The report keeps a 20% bull, 45% base and 35% bear weighting. The base case puts FY27 EPS near $3.70 and values the shares at about $74. That leaves almost no margin of safety at the pre-results price. The level that makes the name interesting drops to about $60, from $65, because both the earnings base and the multiple are lower. The chart is in a downtrend below its 50-day and 200-day averages, which agrees with waiting. January guidance is the next real test: double-digit growth with a higher margin, and a sized saving from the cuts.

The quarterly numbers, scenarios and risk register are set out in the complete Netflix (NFLX) report on our Reports page.