Netflix (NFLX) Drops Despite Earnings Beat

30 Jul 2025 · 2 min

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2:06

In this commentary, the speaker (addressing CFAs) explains that Netflix’s share price declined even after an earnings beat because the market has priced the stock at an unrealistically high multiple relative to its no‑growth intrinsic value. He introduces the concept of a “good company, bad stock,” noting that while Netflix shows strong profitability metrics—high return on invested capital and solid earnings—the valuation metrics (price ≈ 6× no‑growth value, free‑cash‑flow yield ≈ 2%, price‑to‑economic‑book ≈ 6, implied growth horizon > 100 years) indicate that investors are assuming unsustainable subscriber and profit growth. The speaker argues that such extreme valuation gaps historically fail, and urges viewers to consult a ticker‑level report tool for detailed metrics and to seek better‑valued opportunities.

Chapters

CFAs, you wonder why a stock like Netflix can go down after beating earnings? Well, it's because the valuation is already so high that it implies an unrealistic amount of subscriber and profit growth. We're seeing a lot of these kind of stocks these days, especially in the tech sector, what I call good company, bad stock. And by that I mean, hey, it's profitable, it makes money, it's got strong economic earnings, strong return on invested capital, maybe even trending up. But the valuation of the stock is implying those great profits and 600% more. Specifically for Netflix, the price of the stock is 6 times the no growth value. The no growth value is effectively the value of the business if you assume profits stay flat. And so we like to value businesses on that metric so that we can get a sense of how big is the difference between the price and that no growth value. And when it's 600% higher, the price is 600% higher than the no growth value. We've seen over time that that almost never— Works. Persists. That's an extremely high valuation. So when you take into account the time value of money, CFAs, that means they're going to be like 800%, 900%, 1,000% higher 10, 15 years in the future. The market's implying that Netflix is going to maintain super high margins and, and achieve unrealistically high levels of market share. If you want proof of this, take a look at our report. Type in a ticker, get an answer. That report will detail exactly where we show profits as really high. Like, for example, it's got a 30% return on invested capital. That's a really great number. That's a very profitable business. But it'll also show you that the free cash flow yield is a low 2%. The price to economic book value is 6.0. And the market implied growth appreciation period, it's more than 100 years. In other words, the business has to grow revenues and profits for more than 100 years at consensus rates to justify the stock price. That's how expensive it is. You don't have to crowd into all these super expensive stocks. You know, it's a good company, bad stock for a reason. There are a lot of good company, good stocks out there that you deserve to know about.