Netflix, Inc. (נטפליקס)
Analytical review · Quarter ended June 30, 2026 (Q2 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. Netflix's Form 10-Q for the quarter ended June 30, 2026, filed July 17, 2026; the Q1 2026 Form 10-Q; the Form 10-K for 2025; the shareholder letters from October 2025 to July 2026; and Form 8-K filings on the termination of the Warner Bros. Discovery merger agreement, a bond offering and a board change. Market data: closing price on October 6, 2026; Bank of Israel representative USD/ILS rate for the same day. The Q3 2026 report had not been published when this review was written.
Company Profile
Netflix, Inc. (נטפליקס) runs a monthly-paid entertainment service: series, films, games and live programming in dozens of languages. It is headquartered in Los Gatos, California, and had approximately 16,000 full-time employees at the end of 2025. The company is led by co-CEOs Ted Sarandos and Greg Peters.
Most revenue comes from monthly membership fees, priced from the equivalent of $1 to $38 per month depending on country and plan. A second, younger revenue source is advertising on the lower-priced ad-supported plan. According to the company, ad revenue exceeded $1.5 billion in 2025, and according to management it will reach about $3 billion in 2026.
In Q4 2025 the company crossed 325 million paid memberships. Since 2025 it no longer reports membership counts or average revenue per membership, and presents revenue and operating margin as its primary metrics. The company describes an audience of "approaching 1 billion people" and penetration of less than 45% of broadband households in its markets.
Financial Performance
In the April–June 2026 quarter revenue rose 13% to $12,560 million, in line with company guidance. Operating income rose 11% to $4,193 million. Operating margin declined from 34.1% to 33.4% as technology (+22%) and marketing (+16%) expenses grew faster than revenue. Net income rose 9% to $3,401 million, and diluted EPS rose 11% to $0.80.
A gradual slowdown in growth
FX-neutral revenue growth: 17% in Q4 2025, 14% in Q1 and 12% in Q2. For the July–September quarter, according to company management, revenue will reach $12,860 million (+11.7%, about 11% FX-neutral) at a 33.2% operating margin. For full-year 2026 the company narrowed its guidance range to $51.0–51.4 billion (from $50.7–51.7 billion) and kept a 31.5% operating margin.
Two unusual items that distort comparisons
Termination fee: in Q1 2026 the company received $2.8 billion after Warner Bros. Discovery terminated its merger agreement with Netflix. The amount was recorded in other income, so Q1 net income ($5,283 million) and first-half net income do not reflect ongoing operations. Brazil non-income tax: in Q3 2025 a cumulative expense of about $619 million was recorded in cost of revenues. Excluding it, operating margin in that quarter was about 33.6% rather than 28.2%, and full-year 2025 margin was about 30.9% rather than 29.5%. Comparisons against Q3 2025 and full-year 2025 are affected.
| $ millions | Q2-25 | Q3-25 | Q4-25 | Q1-26 | Q2-26 |
|---|---|---|---|---|---|
| Revenue | 11,079 | 11,510 | 12,051 | 12,250 | 12,560 |
| FX-neutral growth | 17% | 17% | 17% | 14% | 12% |
| Operating income | 3,775 | 3,248 | 2,957 | 3,957 | 4,193 |
| Operating margin | 34.1% | 28.2% | 24.5% | 32.3% | 33.4% |
| Net income | 3,125 | 2,547 | 2,419 | 5,283 | 3,401 |
| Free cash flow | 2,267 | 2,660 | 1,872 | 5,094 | 1,525 |
Q3-25 includes an expense of about $619 million for Brazil non-income tax. Q1-26 includes the $2,800 million termination fee (pre-tax) in net income and cash flow. FX-neutral growth for Q2-25 and Q3-25 was computed from the reconciliation tables in the shareholder letter.
Balance Sheet & Capital
At June 30, 2026 the company held $9,128 million in cash and deposits, against senior notes with $14,372 million of principal in 12 fixed-rate tranches maturing from November 2026 to 2054. Net debt, as defined by the company: $5,244 million. At the end of Q1 it was about $2.1 billion (debt of $14.4 billion against cash of $12.3 billion); the Q2 increase came mainly from share repurchases exceeding cash flow. A $3 billion revolving credit facility and a commercial paper program of similar size were undrawn. In July 2026, after quarter end, the company issued $1 billion of 5.25% notes due 2036 to repay the November 2026 notes.
Content obligations: the company has obligations to license and produce content totaling $25.1 billion, of which $19.6 billion is not yet on the balance sheet and $11.9 billion is payable within a year. According to the company, obligations for titles not yet known could add $1–4 billion over the next three years. Net content assets on the balance sheet: $33.8 billion, including $10.3 billion in production ($9.2 billion at the end of 2025).
Share repurchases: in 2025 the company bought back $9.1 billion of stock and paused repurchases in December during the Warner Bros. transaction. After the termination, buybacks resumed: $1.27 billion in Q1 and $4.71 billion in Q2, the largest quarter in the company's history. The average price in Q2 was about $89 per share ($97.47 in April, $88.68 in May, $79.08 in June). In April the board authorized an additional $25 billion; the remaining balance at the end of June was $27.1 billion. Shares outstanding fell during the half from 4,222 million to 4,164 million. The company does not pay a dividend.
Stock-based compensation: the expense over the last 12 months was $487 million, about 1% of revenue. Netflix employees choose between cash salary and immediately vested stock options; at the end of June about 124 million options were outstanding at an average exercise price of $39.21.
Segments
Netflix reports a single operating segment. The available breakdown is by four geographic regions.
| Revenue by region, $ millions | Q2-25 | Q2-26 | Change | FX-neutral | Share |
|---|---|---|---|---|---|
| US & Canada (UCAN) | 4,929 | 5,432 | +10% | +10% | 43% |
| Europe, Middle East & Africa | 3,538 | 4,034 | +14% | +11% | 32% |
| Latin America | 1,307 | 1,584 | +21% | +16% | 13% |
| Asia-Pacific | 1,305 | 1,510 | +16% | +18% | 12% |
The most visible slowdown is in the US and Canada, the largest region: FX-neutral growth of 18% in Q4 2025, 14% in Q1 and 10% in Q2. The company explains that the quarter reflected "only a partial quarter impact" of its recent price change. The Q1 letter (April) already stated that "recent price changes have gone well"; the exact effective date does not appear in the filings. Asia-Pacific is the only region where FX-neutral growth barely changed.
57% of first-half revenue was in currencies other than the US dollar. Excluding exchange-rate changes, first-half revenue would have been $535 million lower. The company hedges part of the exposure with forward contracts.
Competitive Position
The differentiation the company presents is global scale: production in more than 50 countries, non-English content accounting for more than a third of viewing, its own delivery network (Open Connect), and a recommendation system built on viewing data from a worldwide audience. Cash spent on content in 2025: about $17.7 billion. Advertising, live programming (NFL, MLB, boxing), cloud games, video podcasts and partnerships with local broadcasters (TF1 in France) broaden the offering.
Competition: the company defines its competitors as "all activities people engage with during their leisure time": streaming services, linear television, social media, open content platforms and gaming. In its January 2026 letter it named YouTube (including Oscars rights from 2029), Amazon and linear television, which still holds more than 40% of US TV screen time. According to Nielsen data cited by the company, Netflix's share of US TV time reached an all-time high of 9.0% in December 2025.
Warner Bros.: in December 2025 Netflix signed an agreement to acquire the studios, HBO and HBO Max. In February 2026 Warner Bros. Discovery terminated the agreement in favor of a deal with Paramount Skydance, and Netflix received a $2.8 billion termination fee. According to the shareholder letter, Netflix decided not to raise its offer. The competitive implication: the library and IP Netflix sought to acquire would be held by a competitor.
Engagement: view hours rose 2% in the first half of 2026 (97 billion hours), after 1.5% growth in 2025. The company announced that from 2027 the detailed viewing report will be published once a year rather than twice, "to keep the focus on our primary financial metrics".
How to Think About This Company
In 2026, Netflix's revenue is growing faster than its viewing. Revenue rose 13% last quarter; view hours rose 2% in the half. The gap is filled by three levers the company names itself: more members, higher prices and advertising. The last two depend on the service being worth more to the customer than what they pay. So the central question when reading the filings is the relationship between what the company charges and the time the audience gives it.
The visible metrics have narrowed. Since 2025 the company no longer reports memberships or revenue per membership, and from 2027 the viewing report will be annual. The decision is presented as a focus on revenue and operating profit. The implication for readers of the filings: volume and price cannot be separated, and regional growth is the main tool for spotting a change in pace.
The US and Canada are the test. It is the largest region (43% of revenue), the most mature, and where the company recently raised prices. Growth there fell from 18% to 10% over three quarters. The company's explanation, a partial-quarter impact of the price increase, will be tested in Q3 — the first full quarter after the change.
Margin expansion, once the base is normalized. The company guides to a 31.5% operating margin in 2026 versus 29.5% in 2025, and to 33.2% in Q3 versus 28.2% a year earlier. Both comparison bases include the Brazil tax expense. Excluding it, 2025 margin was about 30.9% and Q3 2025 margin about 33.6%. In other words, a substantial part of the improvement visible in the guidance is the absence of the unusual expense rather than a change in efficiency.
Accounting profit and cash for content. Netflix amortizes content cost over time but pays for it upfront, especially for originals. When cash payments exceed amortization, cash flow runs below profit. In the first half of 2026 the ratio was 1.16 (1.19 in Q2); for the full year the company targets about 1.1, which requires a more restrained second half than the second half of 2025 (1.11).
2026 carries a lot of accounting noise. A $2.8 billion termination fee in Q1, $729 million of Brazil tax deposits in the half, legal and transaction costs in G&A (+28% in the half), and a write-off of financing costs. The full-year free cash flow guidance (about $12.5 billion) also includes the termination fee; the original guidance, before it, was about $11 billion.
The pace of capital allocation changed. In Q2 the company repurchased stock worth three times the quarter's free cash flow, funding the difference from cash accumulated during the transaction period and from the termination fee. Net debt rose from about $2.1 billion to $5.2 billion. The company states that its priority is reinvestment in the business, then a healthy balance sheet, and only then returning excess cash. The Q2 pace relied on one-time sources.
The competitive structure changed in 2026. The Warner Bros. transaction was an attempt to acquire a library and IP at an enterprise value of $82.7 billion. It was not completed. Under the agreement WBD signed with Paramount Skydance, if completed, those assets would pass to a competitor. Meanwhile the company is expanding licensing from other studios (Universal, Sony, Paramount), live programming and content from creators on open platforms.
Advertising is the new engine. According to the company, the ad plan accounted for more than 60% of Q1 sign-ups in countries where it is offered, and the number of advertisers rose 70% to more than 4,000. Quarterly ad revenue is not disclosed; the annual target, about $3 billion, is about 6% of the company's revenue guidance range.
This framework is intended to structure analysis, not to produce an investment conclusion. It takes no part in the decision — the decision belongs to the reader.
Risks & Monitoring
Risks arising from the filings
- Competition for viewing time: 2% growth in view hours against double-digit revenue growth; YouTube, Amazon and a merged Paramount–Warner Bros. competitor.
- Pricing power: frequent price increases (US, Mexico, Spain in 2026) and slower growth in the US and Canada. The company is re-testing free trials for new members in some markets.
- Foreign exchange: 57% of revenue in foreign currencies; a stronger dollar reduces reported revenue.
- Taxes: Brazil non-income tax disputes (cumulative expense of $619 million and deposits of $729 million); the company does not expect a further material impact on results.
- Content obligations: $25.1 billion, of which $19.6 billion is off the balance sheet.
- Labor: the main US guild agreements expired in 2026; a 2023 strike halted production. The quarterly report states no material change in risk factors.
- Sports and live spending: according to the company, live programming is just over 5% of content spend and about 1% of viewing.
Items to monitor in the Q3 report (October 20, 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Revenue and operating margin vs. company guidance | Guidance: $12,860 million, 33.2% (Q3 2025 excluding Brazil: 33.6%) |
| 2 | US & Canada growth — full quarter after the price increase | 10% in Q2 |
| 3 | 2026 guidance — revenue and margin | $51.0–51.4 billion, 31.5% |
| 4 | Free cash flow and content cash vs. amortization | Ratio 1.16 in H1; annual target about 1.1 and FCF about $12.5 billion |
| 5 | Size and price of buybacks vs. cash flow | $4.71 billion in Q2, FCF $1.53 billion |
| 6 | Any disclosure on advertising and engagement | Ad target about $3 billion for the year; viewing +2% |
| 7 | General and administrative expenses | +28% in H1, including Warner Bros. transaction costs |
| 8 | Net debt and issuance | $5.24 billion; new $1 billion notes in July |
Scenario Framework
Scenarios are descriptive, not predictive. They include no prices, no probabilities and no ranking of outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so that they can be checked against future reports.
- If US & Canada growth accelerates in the first full quarter after the price increase
- If operating margin rises even against a base normalized for the Brazil expense
- If ad revenue reaches the annual target and begins to be disclosed
- If the content cash-to-amortization ratio returns to about 1.1 and cash flow grows without one-time items
- If revenue growth stabilizes around 11%–12% FX-neutral
- If margins move in line with guidance, with modest improvement against a normalized base
- If view hours keep growing at a low rate while price and advertising carry growth
- If buybacks return to a pace consistent with ongoing cash flow
- If US & Canada growth falls below the Q2 level even after a full price quarter
- If the company lowers its 2026 revenue or margin guidance
- If content cash payments keep exceeding amortization at the first-half pace
- If net debt keeps rising because buybacks exceed cash flow
Analytical Lens
The six questions below are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions as every other company.
Key Observations
1. In the April–June 2026 quarter Netflix revenue rose 13% to $12,560 million (12% FX-neutral), and operating income rose 11% to $4,193 million. FX-neutral growth declined from 17% in Q4 2025, and in the US and Canada from 18% to 10%.
2. For Q3 and 2026, according to company management: revenue of $12,860 million and a 33.2% operating margin; for the year, $51.0–51.4 billion and a 31.5% margin. Excluding the Brazil non-income tax expense, Q3 2025 margin was about 33.6% and 2025 margin about 30.9%.
3. In Q1 the company received a $2.8 billion termination fee from the Warner Bros. transaction. In Q2 it repurchased $4.71 billion of stock at an average price of about $89, against free cash flow of $1.53 billion. Net debt rose to $5.24 billion.
4. View hours rose 2% in the first half of 2026. The company has not reported membership counts since 2025, and from 2027 will publish its viewing report once a year.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held a licensed investment adviser qualification in Israel during 2008–2023. As of the publication date of this document, the firm does not hold an investment advice, investment marketing or portfolio management licence.
This document is intended for research and professional study purposes only. Nothing herein constitutes a recommendation to buy, sell, hold or carry out any transaction in securities. Nothing herein substitutes for advice that takes into account the data and needs of each person. Every decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data were drawn from official sources: the quarterly report on Form 10-Q for the quarter ended June 30, 2026 (July 17, 2026), the Q1 2026 Form 10-Q, the shareholder letters for Q3 and Q4 2025 and Q1 and Q2 2026, the annual report on Form 10-K for 2025 (January 23, 2026), and the company's 2026 filings with the U.S. Securities and Exchange Commission. Filings published after this date are not included.
Qualified-Investor Review — Family Office
The full analytical review of Netflix (NFLX) for the quarter ended June 2026 is available to Bakshi Finance premium clients.
It includes a 10-section analysis, "How to Think About This Company", a structured scenario framework and a 6-dimension Analytical Lens.
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