Goldman Sachs reiterates Netflix Buy rating as ad business expansion improves growth visibility

Overview

This is a Goldman Sachs company research report on Netflix Inc., focusing on the key takeaways from Netflix's fourth Upfront advertising event and subsequent discussions with management. The core conclusion is that Netflix's ad business is continuing to strengthen across user scale, ad technology platform, live content, and programmatic buying capabilities. Although Goldman Sachs did not raise its operating forecasts, its confidence in Netflix's long-term revenue growth, operating leverage, and capital return ability increased.

Core views

Goldman Sachs believes Netflix's stock can continue to be driven by three main themes. First, revenue compound growth is supported by user growth, subscription pricing, and ad-tier expansion. Second, profitability and operating leverage still have room to improve while the company continues to invest in industry-leading content budgets. Third, the company has authorized a new $25 billion share repurchase program, increasing capital return intensity. On the advertising business, the report emphasizes that Netflix has more than 250 million global monthly active viewers, more than 60% of new sign-ups choose the ad plan, and ad-tier members are highly engaged. Ad inventory still remains below traditional television levels, so future growth depends more on personalization, targeting, and measurement capabilities than on simply increasing ad load.

Analysis framework

The report is primarily based on event tracking and discussions with management, combining Netflix's Upfront disclosures, advertiser feedback, GS forecast tables, the GS Factor Profile, valuation scenario analysis, and risk disclosures to validate the investment thesis. On valuation, Goldman Sachs uses equal-weighted EV/GAAP EBITDA and EV/FCF-SBC methods to derive the target price, with reference to growth, margins, free cash flow, discount rates, and share count structure.

Methodology notes

• Valuation methodsEqual-weight EV/GAAP EBITDA and EV/FCF-SBC valuation

  The target price is derived from two enterprise value methods weighted 50% each.

  Goldman Sachs applies 25.0x EV/GAAP EBITDA to NTM+1 forecast and 25.0x EV/FCF-SBC to NTM+4 forecast, then discounts the latter back three years at a 12% discount rate, with the two methods equally weighted to arrive at the $120 base-case valuation.

• Valuation methodsmodified DCF

  Uses future free-cash-flow-related multiples and discounts them back to today.

  The report's modified DCF uses the EV/FCF-SBC multiple to measure future cash flow capacity and discounts it using a CAPM discount rate that includes a 3% risk-free rate, a beta of about 1.3, and a 7% equity risk premium.

• factorGS Factor Profile

  Compares a stock's positioning versus the market and its industry using growth, financial return, valuation multiple, and composite score.

  NFLX scores strongly on financial return and also trades at a rich valuation multiple, while growth is at a medium-to-high level; the composite score is relatively lower versus Americas internet peers, reflecting the coexistence of high-quality growth and a high valuation.

• scenario_analysisdownside/base/upside scenario

  Evaluates valuation elasticity using downside, base, and upside cases.

  The scenario analysis shows a downside valuation of about $78, a base case of $120, and an upside case of $140; the upside case depends on higher EBITDA and FCF-SBC margins, higher growth, higher valuation multiples, and a lower discount rate.

Asset mapping & comparison

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

• Netflix Inc. common stock (NFLX.US)

  Core coverage name; the report maintains a Buy rating and a $120 target price.

  Strengths

  Large global user base, improving ad-tier penetration, self-built and expanding ad technology platform, strong content and live-event slate, improving margins and free cash flow expected to continue, and stronger capital returns from repurchase authorization.

  Weaknesses

  High valuation multiple, ad business still in an expansion and execution phase, revenue growth is gradually slowing, and ad impression expansion must be balanced against user experience.

  Comparison

  The GS Factor Profile shows NFLX ranking relatively high on financial return among Americas coverage stocks and also strong on financial return versus Americas internet peers, but the composite score is not outstanding, reflecting the coexistence of quality and valuation pressure.

  Risks

  Subscriber growth below expectations, the timing and magnitude of price increases affecting churn, ad-tier execution slower than expected, M&A integration or regulatory risk, and intensifying industry competition.

Key data

• RatingBuyGoldman Sachs reiterated a Buy rating.
• 12-Month Target Price$120The target price was unchanged.
• Current Price$86.94Netflix Inc.'s price, shown repeatedly in the report disclosure.
• Global Monthly Active Viewers>250mNetflix disclosed that global MAV exceeded 250 million.
• Share of New Sign-ups Choosing the Ad Plan>60%More than 60% of new sign-ups chose the ad plan.
• Weekly Login Rate of Ad-tier Members>80%More than 80% of ad-tier members log in weekly.
• 2027 Ad Suite Expansion15 new countriesIncluding Sweden, Colombia, Thailand, New Zealand, and others.
• 2026E Revenue$51.664bnGS forecast table basis.
• 2028E Revenue$65.816bnGS forecast table basis, continuing to grow versus 2025.
• 2026E EBITDA$17.067bnGS forecast table basis.
• 2028E FCF$17.679bnCash flow forecasts show free cash flow continuing to improve.
• New Share Repurchase Authorization$25bnThe report cites this as an important driver of higher capital returns.

Impact & implications

The report is positive for NFLX: the monetization capacity of the ad business is strengthening across multiple dimensions, including user scale, ad technology, data partnerships, programmatic buying, and live content, which should help expand the ad revenue pool and improve revenue visibility. If subscription prices, user growth, and ad monetization all advance in tandem, Netflix may continue to deliver operating leverage despite high content investment and enhance shareholder returns through buybacks. However, the high valuation means the market needs to continue seeing growth and margin delivery.

Risks

• Subscriber growth falls short of Goldman Sachs forecasts.
• The timing and scale of price increases could lift churn and pressure operating forecasts.
• Ad-supported tier rollout progresses more slowly than expected.
• Integration, execution, and regulatory risks related to M&A.
• Rising competition in streaming and online entertainment affects subscriber growth, original content returns, and consumer attention.
• The high valuation requires continued growth and margin delivery; if execution falls short, valuation de-rating risk is elevated.

What to watch

• The rollout pace of Netflix Ad Suite expansion to 15 new countries in 2027.
• Commercial progress in Pause Ads, dynamic ad insertion in Live, and programmatic audience targeting with Amazon and Yahoo.
• The balance among ad-tier growth, weekly active usage, ad load, and frequency caps.
• The impact of live events, NFL games, FIFA Women's World Cup 2027, and similar content on ad inventory and user engagement.
• Early performance of new ad formats such as vertical video streams and video podcasts.
• Churn after subscription price increases and the quality of revenue growth.
• Free cash flow, margin expansion, and execution progress on the $25 billion buyback.