The market is too pessimistic about profits after the advertising forecast cut. I retain Buy but lower my twelve-month target to $83.59, allowing for slower advertising growth and more spending to improve programming.
Key points
- $83.59 a share is my October 2027 target after reducing earnings estimates.
- $3.8 billion is my 2027 advertising forecast, down from $4.5 billion.
- 32% is my 2027 operating-margin forecast, below my previous 33%.
The call
The market is too pessimistic. At 24 times earnings, the supplied price requires a 2027 operating margin of roughly 25% on my revenue forecast. That is substantially below management's 2026 forecast of 31.5%. This is a conditional valuation, not a unique reading of market expectations.
Revenue growth is slowing across regions (%)- Q3 2025 reported
- Q3 2026 reported
- Q3 2026 currency-neutral
Netflix October 20, 2026 shareholder letter; year-over-year growth, currency-neutral removes exchange-rate effects.
Subscription strength should outweigh the advertising delay. I forecast 2027 non-advertising revenue growth of 8.5%, with advertising growing 40%. Subscriptions exceeded management's expectations despite higher prices. March's advertising expansion provides a concrete recovery test, but slowing regional growth and programming changes justify lower estimates. The stock's severe market underperformance demands proof, not dismissal.
Valuation
| Driver | My estimate |
|---|
| 2027 revenue | $56.3 billion |
| 2027 operating margin | 32% |
| 2027 diluted shares, including employee awards | 4.10 billion |
| 2027 earnings per share | $3.48 |
| October 2027 earnings multiple | 24 times |
| October 2027 target | $83.59 a share |
My earnings estimate deducts $600 million of net interest and other expense and an 18% tax rate, excluding another deal-termination windfall. The 24-times multiple rewards global distribution and recurring subscriptions without assuming advertising becomes a separate technology franchise, while allowing for interest-rate risk. A $60.50 downside scenario against $100.91 upside supports Buy, not Strong Buy.
Risks
- Advertising delays could persist: watch whether March 2027 launches happen and management cuts advertising expectations again.
- Higher prices could exhaust customer tolerance: watch subscription growth and whether management's reported improvement in cancellations reverses.
- Cash spending could outrun earnings: nine-month content cash costs exceeded recognized expense by $2.2 billion; watch that gap and borrowing-funded repurchases.
What would change my mind
I would withdraw the buy if 2027 guidance combines revenue growth below 8% with an operating margin below 31%.