Netflix Stock Is Cheap and It Has More Than 70% Upside Potential Here

On August 13, Netflix (NFLX) shares surged 5.4% following Bill Ackman's Pershing Square Holdings' announcement of a new stake in the streaming giant. Despite trading well below its peak, the investment case for Netflix remains strong. The company has experienced a significant valuation reset, but its underlying growth and profitability outlook continue to be robust.

Pershing Square's optimism is rooted in Netflix's potential for sustained double-digit revenue growth while maintaining content expenses below the rate of sales growth. If this operating leverage persists, expanding margins could yield a notable boost to earnings.

The stock's performance has been impacted by two main factors: an anticipated slowdown in growth rates and changes in Netflix's engagement reporting practices. Netflix's Q3 guidance of 11.7% year-over-year revenue growth falls short of Wall Street expectations, raising concerns about the company's ability to maintain similar expansion rates amid increasing competition in the streaming market.

Furthermore, the upcoming comparison period in the second half of the year will be more challenging, as Netflix will be evaluated against a particularly strong performance from the previous year, potentially leading to slower reported growth rates.

Despite these concerns, Netflix's fundamentals remain solid. The company is well-positioned to deliver strong revenue and earnings growth driven by continued membership expansion, pricing power, advertising monetization, and improving operating leverage. For 2026, management anticipates revenue of approximately $51 billion to $51.4 billion, representing a year-over-year growth of 13%–14%, primarily fueled by membership growth and pricing, with advertising contributing an additional catalyst.

Advertising revenue is expected to double to $3 billion, underscoring its growing importance in Netflix's revenue mix.

Another crucial aspect of Netflix's strategy is its ability to grow revenue faster than content costs, which supports its margins. In 2026, content expenses are projected to increase by 10%, slightly higher than the 8% average growth rate over the past five years but still well below the revenue growth forecast. Additionally, Netflix is expanding into new entertainment offerings, which should bolster subscriber retention, reduce churn, and enhance the company's pricing power.

Netflix's current valuation appears reasonable, trading at 20.8x forward earnings, below its historical premium multiples. The stock carries a Moderate Buy consensus rating, with the average analyst price target of $95.09 indicating approximately 22% upside from the stock's closing price of $78.24 on August 13. The highest price target of $135 implies a potential 73% upside over the next 12 months.

Despite the recent weakness in the stock price, Netflix's strong content portfolio, disciplined content spending, and increasing advertising monetization suggest robust earnings growth ahead.