Goldman Upgrades Netflix to Buy Ahead of Earnings
Goldman Sachs upgraded Netflix to a Buy rating from Neutral, raising its 12-month price target to $120 from $100. The firm believes the stock now offers a more attractive risk-reward profile as it approaches its first-quarter earnings report.
Share Decline Creates New Entry Opportunity
Netflix shares have declined roughly 18% over the past six months. Goldman attributes part of this weakness to uncertainty surrounding the company’s now-abandoned attempt to acquire assets from Warner Bros. Discovery.
With the deal no longer on the table—and Netflix receiving an estimated $2.8 billion termination fee—analysts see the company refocusing on its core business, which could support upward revisions in earnings expectations.
Growth Driven by Subscribers, Pricing, and Advertising
Goldman’s bullish outlook is based on three key growth drivers. First, the bank expects consistent low double-digit revenue growth over the next three to four years.
This growth is projected to come from:
- Continued subscriber expansion
- Higher revenue per user
- Rapid growth in Netflix’s advertising segment
Advertising revenue alone is forecast to rise from approximately $1.5 billion in 2025 to $4.5 billion by 2027, reaching nearly $9.5 billion by 2030.
Additionally, Netflix increased prices across its main U.S. subscription plans in March 2026. Analysts estimate this move could generate an additional $3 billion in revenue across 2026 and 2027.
Margin Expansion and Strong Cash Flow Outlook
Goldman also expects steady margin improvement, forecasting around 250 basis points of annual operating margin expansion over the next three years. This is expected to be supported by more disciplined cost management and slower growth in content spending.
The firm further noted that management’s projection of approximately $11 billion in free cash flow for 2026 may prove conservative, especially now that major acquisition plans have been shelved.
Share Buybacks to Support Earnings Growth
Another key positive factor highlighted by Goldman is Netflix’s potential for significant capital returns. Since 2023, the company has repurchased about $21 billion worth of shares, representing roughly 90% of its annual free cash flow.
Although buybacks were paused during the acquisition process, Goldman sees room for a strong return to shareholder distributions. The firm estimates that Netflix could repurchase 20% to 25% of its current market value over the next five years, which would provide a meaningful boost to earnings per share.
Valuation Suggests Upside Potential
From a valuation perspective, Netflix currently trades at a price-to-earnings-to-growth (PEG) ratio of around 1.1x. This is significantly below its five-year average of approximately 1.65x and below levels seen prior to the acquisition announcement.
Goldman views this discount as an attractive entry point for investors, reinforcing its upgraded outlook on the stock.
