Netflix: From growth darling to value pay?

I spent the last few months going through Netflix and after the recent sell-off I think the stock has become interesting again. For sure not screamingly cheap but surely a very good business where expectations have finally come down. NFLX is around $74 right now and aboit 45% below its 2025 high. Meanwhile the actual business hasn't exactly collapsed... Q2 revenue was $12.56B, up 13.4%. Operating margin was 33.4%. Netflix still expects roughly $51.2B of revenue this year, a 31.5% operating margin and around $3B from advertising. # Why It's Being Dumped At the same time, I think the reason why it's been battered and the market's concern is actually reasonable. Netflix isn't the hypergrowth story it used to be. Q3 revenue guidance implies growth of 11.7%, the slowest pace since 2023. The most important numbers from Q2 where viewing hours which grew only 2% in H1 while revenue grew 15%. In other words, Netflix is monetising its audience much faster than the audience itself is growing. That works through higher prices, paid sharing and advertising, but you can't extrapolate it forever. I also really dislike that Netflix has reduced disclosure around subscribers, ARPU and now viewing data. When investors are specifically questioning engagement, less transparancy is pretty much the opposite of what I'd like management to do... # Is it a Hated Moat? The reason I'm still (mildly) bullish is the economics. Netflix has over 325m paid memberships and can spread content spending across an audience that virtually nobody else can replicate. Insane distribution power. That's the moat in my view. Cancelling Netflix takes about 30 seconds so there's virtually no switching costs. But the scale, distribution, brand, recommendation data and the ability to spend billions on content and monetise it globally with the classic of "it's not going anywhere". The clearest evidence is perhaps profitability. Netflix had a 29.5% operating margin in 2025 and is guiding to 31.5% this year. Disney's streaming business and WBD's streaming business are nowhere close to Netflix economically. That doesn't mean Disney or YouTube (and even TikTok) can't hurt Netflix. Actually, I think YouTube is probably the more interesting long-term competitor because Netflix isn't really competing for “streaming subscribers” but for people's free time. As they'd say it in Google - Attention is all you need. TikTok, YouTube, gaming, Disney+, HBO, sport,... It's all the same attention pool. # Advertising This is the biggest potential upside in the investment thesis. Netflix expects roughly $3B of ad revenue this year, about double last year. If advertising becomes a serious second monetisation layer, Netflix doesn't really need subscriber growth to return to its old levels. It can make more money from the same hours watched. That's particularly important internationally, where Netflix already has enormous scale but earns far less per member than it does in North America. The underwritten combination is fairly simple: slower subscriber growth + pricing + advertising + modest engagement growth + operating leverage. Another decade of 20%+ revenue growth is not really needed for this company to do well... # Valuation My updated DCF gives: Bear case: $57 Base case: $88.50 Bull case: $115 The base case assumes revenue growth gradually falls from 11.5% in 2027 to 3.5% by 2035, while operating margin eventually reaches 37%. WACC is 8.1% and terminal growth 3%. At the current price, the stock appears to be mildly undervalued. Not an absolute bargain but still a solid entry price, especially if you believe in the story of the next 5 years. Also, the DCF is sensitive, as it goes... About 68% of enterprise value comes from the terminal value, so small changes in WACC or terminal growth matter a lot. # When does the thesis go south? The main thing I'll watch is engagement. If viewing stays nearly flat while Netflix keeps pushing prices higher, eventually you have to question how much pricing power is actually left. I'll also be worrieed if content spending starts rising materially faster than revenue, advertising disappoints, or Netflix needs increasingly expensive live rights just to keep people engaged... In such case, it could start looking awfully much more like traditional media. And that's basically the thesis... I think Netflix is interesting because the market has gone from treating the company like an exceptional story to increasingly treating it like a mature media company. My take is that it's neither and the truth is somewhere in between. Growth is definitely slowing, but the underlying business has probably gotten stronger. Margins are higher, cash generation is better, the share count is falling and advertising gives Netflix another way to monetise its huge audience. Below $65 I'd get considerably more interested to add to my position and aound our $53 “deeply undervalued” level, assuming the thesis hasn't deteriorated, the risk/reward starts looking very different. Curious where people here disagree, particularly on the moat. Do you consider Netflix's global scale and distribution a genuine competitive advantage (or at least good enough), or is the lack of switching costs with the incoming era of YouTube enough to prevent it ever having a strong moat again? Disclosure: I own NFLX, avg price: $73.98 per share