Morgan Stanley maintains a Netflix Overweight rating but lowers the target price to $90

Overview

This Morgan Stanley report focuses on Netflix Inc.'s earnings outlook in mid-2026, investor sentiment, engagement trends, post-price-hike churn risk, and risk-reward after valuation reset. The report title "We've Seen This Movie Before - Reiterate OW" indicates the analysts compare current concerns to the valuation trough after Netflix's first subscriber decline in 2022, arguing that the stock now reflects much of the negative expectations, while the company’s long-term revenue growth, margin expansion, and free cash flow generation remain robust.

Core views

The core view is to maintain an Overweight rating while lowering the target price from $115 to $90. Reasons for the cut include a roughly 40 bps drag from U.S. dollar strength, a 50-100 bps increase in the 2H26 U.S. churn assumption following the recent price adjustment, and sentiment-driven de-rating from about 30x previously to around 22x NTM EPS. Despite this, the report believes Netflix can still deliver double-digit revenue growth, continue operating margin expansion, and achieve about 20-25% standalone EPS CAGR from 2025-2028E.

Analysis framework

The report applies a combination of forward guidance review, credit card panel data, consumer surveys, historical valuation analogs, scenario analysis, and a risk-reward framework. Analysts particularly compared current engagement and churn concerns with the 2022 trough and assessed the target price range through bull, base, and bear scenarios.

Methodology notes

• Valuation frameworkNTM EPS multiple

  Forward P/E multiple valuation

  The base target of $90 is based on roughly 22x NTM EPS, down from 30x previously, reflecting weaker investor sentiment and a drop in peer valuation multiples.

• Scenario analysisBull/Base/Bear scenario analysis

  Bull, base, and bear scenarios

  The report provides $115 bull, $90 base, and $60 bear target prices, using assumptions for revenue growth, margins, churn, and subscriber additions to define the risk-reward range.

• Alternative datacredit card panel data

  Credit-card panel churn observation

  Roughly 9 million U.S. credit and debit cards are used to monitor subscription transaction changes; the report notes limitations including sample representativeness, brand mapping, data revisions, and reissued cards being misclassified as churn.

• Consumer researchsurvey work

  User retention and price perception survey

  The survey shows Netflix has the highest net retention score among video streaming services and that users still perceive strong value in the approximately $20/month ad-free plan, supporting a long-term pricing power view.

• Historical comparison2022 analog

  2022 valuation floor reference

  The report compares current concerns with the post-negative subscriber-turning-point trough in 2022, when the stock traded around 14-15x forward EPS at the bottom; if engagement deteriorates further, this range could serve as a downside valuation reference.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Netflix Inc (NFLX.US)

  Core covered name; the report maintains an Overweight rating and cuts the target price.

  Strengths

  Global streaming leadership, strong content budget, relatively high customer value perception, long-term pricing power, free cash flow generation, and operating leverage.

  Weaknesses

  Engagement growth has slowed to low single digits, churn after price increases may be higher than normal, a relatively light recent content calendar, and significantly weaker investor sentiment.

  Comparison

  The report compares the current situation with the valuation trough in 2022 after Netflix's first subscriber decline and argues that current PEG remains attractive relative to large-cap technology and media internet peers.

  Risks

  Intensifying competition, pressure from short-video and user-generated content platforms, limited international penetration, margin expansion below expectation, and M&A discount or capital allocation concerns.

Key data

• RatingOverweightThe report maintains an Overweight rating.
• Target price change$115.00 -> $90.00The target price was lowered, mainly reflecting weaker earnings forecast assumptions and multiple compression.
• Current price$73.83The price date is 2026-07-13.
• Base-case upside~22%Calculated based on a $90 target versus the current $73.83.
• Bear-case target$60.00Represents roughly -19% to -20% downside, about 15-17x forward P/E range.
• Bull-case target$115.00Represents roughly 55%-56% upside.
• FY26E revenue$51.298bnFY26 revenue in the base scenario table.
• FY26E operating margin31.5%Report expects FY26 operating margin around 31.5%.
• FY26E FCF$12.844bnFCF is defined as CFFO minus capex.
• FY27/28 EPS adjustment~4% lowerThe report says FY27/28 EPS was reduced by about 4% due to FX, pricing actions, and churn assumptions.
• 2025-2028E base EPS CAGR~20-25%Base-case assumptions include double-digit global revenue growth and continued margin expansion.
• Credit card panel size~9 million U.S. credit and debit cardsUsed to monitor transaction and potential churn changes, though representation and mapping limitations remain.

Impact & implications

For investment implications, the report suggests Netflix may face a lack of clean near-term catalysts, with the market likely focusing on engagement, post-price-hike churn, FX, and content calendar around the 2Q/3Q earnings windows. If the company can maintain double-digit revenue growth, expand margins through operating leverage, and accelerate buybacks, the current valuation below 20x forward P/E may look attractive.

Risks

• Post-price-hike subscriber churn being higher than expected, weighing on 2H26 and subsequent revenue growth.
• Further weakening in engagement growth, undermining long-term pricing power and investor confidence.
• Content underperformance, including insufficient breakout programming or weaker subsequent-season performance.
• Escalating competition from short-video, YouTube, Instagram, TikTok, and related platforms.
• Higher content investment or competitive pressure leading to operating margin expansion below expectations.
• Dollar strength creating a revenue tailwind drag, with the report citing about 40 bps impact.
• Uncertain impact of AI on the content landscape, potentially altering cost structures and competitive advantages.
• Potential M&A interest or capital allocation concerns leading to valuation discount.

What to watch

• 2Q26 revenue, margins, FCF, and management confirmation of FY26 guidance.
• 3Q26 revenue guidance, especially the impacts of FX, seasonality, and churn.
• Whether U.S. post-price-hike churn continues to remain above historical norms.
• Whether Netflix continues to disclose detailed engagement data and provides higher-quality engagement metrics.
• Whether 2H26 live events, sports, and key content slate can improve engagement performance.
• Whether share repurchases exceed the roughly $2bn per quarter assumed in the report model.
• The revenue contribution from experiments in short-form content, mobile formats, interactive gaming, live channels, and subscription bundles.
• Expansion in ad-tier new markets and subsequent growth momentum after paid sharing.