Most analysts on Wall Street are of the opinion that Netflix’s stock is currently undervalued.
Since 1980, stocks that have undergone splits in the S&P 500 typically see a rise of about 14 percent in the year following the announcement. However, Netflix, after revealing a 10-for-1 stock split on October 30, has seen its stock price drop by 28%, while the S&P 500 index has only increased by approximately 1%.
Despite this, nearly all analysts tracking Netflix believe that the stock, now priced at around $79, is undervalued. The lowest price target remains at $79 with no change, though the highest target—set by Baird’s Vikram Kesababotla—suggests it could reach $150, indicating a potential upside of 90%.
Currently, Netflix is trading around 41% below its highest value ever. This decline appears to stem from investor concerns about the company’s acquisition strategy, particularly with Warner Bros. Discovery. Still, I might argue that this situation offers a pretty appealing buying opportunity. Here’s what I think:
Netflix’s Dominance in Streaming
Netflix has capitalized on its early entry into the streaming market and continues to hold a leading position across various metrics despite mounting competition. It boasts a significant number of subscribers, high monthly activity, and a considerable share of TV viewing time (not including YouTube, of course), outperforming its rivals.
This substantial scale provides Netflix with a unique data advantage, which feeds into its machine learning models to guide content creation. Consequently, Netflix originals often perform extraordinarily well. For instance, its three most-watched original series last year—Stranger Things, Squid Game, and Wednesday—were all produced by Netflix. According to analytics from Nielsen, seven out of the top ten original streaming series in 2025 will also be from Netflix.
In its latest quarterly report, Netflix posted a revenue increase of 18% to reach $12 billion, marking its third consecutive year of acceleration due to subscriber growth, pricing adjustments, and rising advertising revenue. Additionally, its net income climbed 30% to $0.59 per diluted share, according to GAAP.
Concerns Over Acquisition of Warner Bros. Discovery
Netflix has proposed an all-cash acquisition of Warner Bros. Discovery’s streaming and studio businesses at $27.75 per share, totaling around $72 billion. However, this also includes nearly $11 billion in debt from those business units, which raises the total acquisition cost to roughly $83 billion.
This deal carries risks. Reports suggest Netflix may accumulate up to $50 billion in debt to finance this acquisition, which could restrict cash flow for future content production and possibly hamper profit growth. Moreover, merging the most popular streaming service with a less dominant competitor may draw regulatory scrutiny.
Yet, there are potential benefits to the deal, such as Netflix securing rights to significant franchises like the DC Universe and others, which Co-CEO Greg Peters indicated could lead to a wealth of original content, fueling growth for many years ahead.
It’s hard to predict how this will all play out, but Morgan Stanley analyst Benjamin Swinburne mentioned that when Netflix was trading around $87, the risks of this acquisition were already factored into the stock price. Now, with shares at about $79, the anticipation is that Netflix’s earnings after the acquisition could climb to $6.50 per share by 2030, suggesting a 21% annual growth rate over the next five years.
Swinburne’s forecasting aligns with the broader expectations among Wall Street analysts, who are anticipating a 22% annual earnings growth for Netflix in the next three years. Based on these projections, the current price-to-earnings ratio of 31x seems reasonable, giving Netflix a price-to-earnings growth (PEG) ratio of 1.4x—lower than its three-year average of 1.7x.
In my view, the current marketplace seems overly pessimistic about Netflix, potentially presenting a buying opportunity for those willing to wait.
