Netflix Inc

We acquired a position in Netflix, a business we briefly owned in 2022 and have followed closely ever since. Netflix is the dominant global streaming platform with over 325 million subscribers, nearly double the combined base of its two closest competitors, Disney+ and HBO Max. Netflix has since effectively won the streaming wars. Its subscriber base now exceeds any competitor's by a wide margin, and that scale is self-reinforcing. Netflix can outspend rivals on content while spreading the cost across the industry's largest user base, improving both the value proposition for subscribers and profitability for the company. Looking forward, we expect Netflix to compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue driving continued margin expansion. Combined with a robust buyback program, we estimate earnings should compound at close to 20% annually.

Netflix was a detractor from returns during the quarter after the stock came under pressure despite reporting solid first quarter results in April. Revenue grew 16% year-over-year, or 14% excluding FX, and operating income rose 18%, supported by strong growth in APAC and Latin America. Second quarter revenue guidance came in roughly 1% below expectations and EBIT guidance was 5% light due to content amortization timing. Management maintained full-year guidance of 11% to 13% revenue growth (excluding FX) and approximately 20% profit growth rather than raising it, which disappointed some investors who had anticipated a lift following the recent price hike and the removal of the Warner Bros. Discovery deal overhang. The company continues to expand its mobile and content initiatives, while evaluating longer-term opportunities in advertising and AI-driven production tools.

Netflix, Inc. continues to demonstrate strong fundamentals, reporting quarterly results that exceeded consensus expectations for revenue, operating income, free cash flow, and earnings per share. The company generated $12.3 billion in revenue, a 14% increase in constant currency, driven by higher subscriptions and ad revenue, which is projected to reach $3 billion in 2026. With over 325 million paid subscribers and a global audience nearing 1 billion, Netflix's competitive advantages include its scale, brand strength, and a vast library of original content, having invested over $120 billion in content over the past decade. Despite some short-term guidance concerns, our long-term investment thesis remains intact as Netflix's financial model continues to improve, evidenced by a 91% increase in free cash flow year over year.

Netflix, the streaming giant, experienced a share price decline despite strong organic growth driven by membership increases, higher pricing, and advertising revenue. The market reacted negatively to Netflix maintaining its 2026 guidance, raising concerns about future growth. However, the company demonstrated capital discipline by withdrawing from a bidding war for Warner Bros, signaling a return to its organic growth strategy focused on internal content investment. Netflix's resumption of share buybacks and its efforts to scale advertising capabilities, including AI-driven ad targeting, reinforce its position as a dominant, high-quality company generating strong cash flows.

Netflix (NFLX) underperformed during the second quarter as shares retraced a portion of their strong first quarter gains following an extended period of outperformance. The selloff was primarily driven by profit-taking and valuation compression rather than any meaningful deterioration in the company's underlying fundamentals. We believe the weakness reflects a normalization in valuation following exceptional performance rather than a change in the company's long-term outlook. Netflix should remain well positioned to compound earnings through continued subscriber growth, expanding advertising monetization, and disciplined capital allocation.

Netflix (NFLX) underperformed during the second quarter as shares retraced a portion of their strong first quarter gains following an extended period of outperformance. The selloff was primarily driven by profit-taking and valuation compression rather than any meaningful deterioration in the company's underlying fundamentals. We believe the weakness reflects a normalization in valuation following exceptional performance rather than a change in the company's long-term outlook. Netflix should remain well positioned to compound earnings through continued subscriber growth, expanding advertising monetization, and disciplined capital allocation.

Netflix has given up a lot of the gains following its rally after walking away from its bid for Warner Bros Discovery. This was driven by a combination of a more positive macro outlook and higher interest rates (Netflix is viewed as defensive) and limited near-term engagement growth in the US. We view the latter as largely a short-term issue driven by a strong sporting calendar and growth in engagement of short video due to improvements in algorithms. We continue to view Netflix as well-placed to maintain its position as the dominant streaming platform for professional content and grow profits strongly over the medium term.

Despite a decline of approximately 25% during the quarter, Netflix's underlying quarterly results were strong, and the company reaffirmed its commitment to a streaming-first strategy after terminating its proposed acquisition of Warner Bros. Discovery. The collection of a $2.8 billion termination fee further strengthens its financial position. Analysts have raised concerns about viewer retention, but we continue to view Netflix's combination of global scale, expanding operating margins, and growing advertising monetization as a durable long-term competitive position.

During the quarter, our equity teams added to multiple existing holdings where valuations had compressed, such as Netflix in the QV Global Equity Strategy. We believe that Netflix's strong position in the streaming market, combined with its ability to adapt to changing consumer preferences, positions it well for future growth. The current valuation presents an attractive entry point for long-term investors, as we see potential for significant earnings growth as the company continues to innovate and expand its content offerings.

We initiated a new position in global streaming giant, Netflix. Despite concerns that its recent bid for Warner Bros. indicated stagnation in its streaming business, we remain optimistic. The introduction of an ad-supported tier is a savvy strategy to extend its growth runway, allowing Netflix to tap into the multi-billion-dollar global advertising market. This lower-price ad-tier not only broadens its potential customer base but also enhances the pricing power of its premium, ad-free tier.