Netflix stock looks cheap ahead of July 16 earnings report

Netflix shares are trading around 24‑25 times forward earnings, the lowest multiple since the 2022 bear market, as the company heads into its July 16 earnings release [1].

Valuation and cash generation

Netflix reported $12.2 bn of revenue in Q1 2026, up 16.2 % year‑over‑year, and earnings surged 86 % to $1.23 per share, buoyed by a $2.8 bn termination fee from the collapsed Warner Bros. deal [1]. The company’s free cash flow of $5.09 bn in the quarter represents a 91 % year‑over‑year increase, and management now projects $12.5 bn of free cash flow by the end of 2026 [2]. These cash metrics support a price‑to‑free‑cash‑flow ratio of 34, aligning Netflix with the broader S&P 500 despite revenue growing at a mid‑teens clip [2]. With a forward P/E of 25 and a price‑to‑book ratio that has not been this low since mid‑2022, the stock appears undervalued relative to its cash‑rich balance sheet [1][2].

Competitive positioning

Netflix remains the most‑watched streaming service and boasts the lowest churn rate among its peers [1]. Compared with Disney’s direct‑to‑consumer segment, which is still chasing sustainable profitability, Netflix guides a company‑wide operating margin of 31.5 % for 2026, up from 29.5 % the prior year [2]. Warner Bros. Discovery continues to run a negative free cash flow profile, while Netflix’s debt‑to‑equity stands at 0.54 and net‑debt/EBITDA at 0.18, metrics that outperform both rivals [2]. The ad‑supported tier now accounts for over 60 % of Q1 sign‑ups in ad markets, with advertiser count up 70 % year‑over‑year to more than 4,000 clients, and management targets roughly $3 bn in ad revenue for 2026—double the prior year’s figure [2].

What to watch

• July 16 earnings release and Q2 revenue guidance (forecast $12.57 bn) [1].
• Progress on the ad‑supported tier’s revenue target of $3 bn for 2026 [2].
• Any update on share buybacks, given $1.3 bn of repurchases in Q1 and $6.8 bn remaining authorized [2].

The combination of a deep cash moat, a low valuation relative to earnings, and margin expansion through advertising makes Netflix a compelling case study for investors watching the streaming sector’s recovery. Whether the upcoming earnings confirm these trends will shape the stock’s trajectory in the months ahead.