NFLX: WBD Exit Frees $83B for Buybacks

Netflix trades at a trailing P/E of 38.8x on FY2025 EPS of $2.53, placing it firmly in growth territory. The price-to-book ratio of 14.9x and [EV/EBITDA](/posts/2026-02-21/deep-dive-how-to-value-a-stock-pe-evebitda-dcf-and-the-metrics-that-actually-matter) of 51.2x reflect investor confidence in Netflix's long-term earnings power, though both metrics run well above the S&P 500 media sector averages.

The stock's price-to-sales ratio of 32.9x appears elevated, but Netflix's improving margin profile justifies a premium. Gross margins expanded from 46.4% in Q3 to 45.9% in Q4, while operating margins averaged 29.3% across 2025 — a dramatic improvement from the sub-20% levels seen in 2022. At $98.24, the stock trades at roughly 19x FY2025 free cash flow of $9.46 billion, which is more reasonable for a company growing revenue at 14% annually.

With an earnings yield of just 0.6%, Netflix must continue delivering double-digit growth to justify its current valuation. Analyst consensus estimates point to FY2030 EPS of approximately $5.49 (annualised from quarterly estimates), implying a forward path to significant earnings expansion.

Netflix delivered a strong FY2025 with sequential quarterly revenue growth throughout the year: Q1 at $10.54 billion, Q2 at $11.08 billion, Q3 at $11.51 billion, and Q4 at $12.05 billion — totalling approximately $45.18 billion for the full year, up 14% from FY2024.

However, profitability tells a more nuanced story. Net income peaked at $3.13 billion in Q2 (28.2% margin) before declining to $2.55 billion in Q3 and $2.42 billion in Q4 (20.1% margin). The Q4 margin compression was driven by higher content amortisation costs ($4.85 billion, up 18% from Q3) and increased selling expenses ($1.11 billion versus $786 million in Q3) tied to new content launches and the holiday push.

Operating income followed a similar pattern, peaking at $3.77 billion in Q2 before falling to $2.96 billion in Q4. Diluted EPS for FY2025 came in at $2.53, representing a 26% increase year-over-year from FY2024's $2.00 figure.

Netflix's balance sheet has undergone a remarkable transformation. FY2025 operating cash flow reached $10.15 billion, up 38% from FY2024's $7.36 billion. [Free cash flow](/posts/2026-02-21/deep-dive-free-cash-flow-explained-why-it-matters-more-than-earnings) hit $9.46 billion — a 37% jump from the prior year's $6.92 billion — reflecting disciplined capital expenditure of just $688 million.

The company ended 2025 with $9.04 billion in cash against a debt-to-equity ratio of 0.54x, down from 0.73x at the start of the year. Interest coverage stands at a comfortable 12.6x, and the current ratio of 1.19x indicates adequate short-term liquidity.

Netflix deployed $9.13 billion on share buybacks in FY2025, reducing the share count by approximately 1% year-over-year. With the $83 billion WBD bid now off the table, investors expect the company to accelerate its buyback programme significantly, potentially retiring 5-8% of outstanding shares over the next two years. This capital return story is a key catalyst behind the recent rally.

Netflix's decision to walk away from the Warner Bros. Discovery acquisition marks a pivotal strategic moment. Rather than absorbing a complex media conglomerate with declining linear TV assets and significant debt, Netflix chose to invest in organic growth and return capital to shareholders.

The company's competitive moat rests on three pillars. First, scale: with over 300 million global subscribers, Netflix's content amortisation cost per subscriber remains the lowest in streaming. Second, pricing power: Netflix has successfully implemented multiple price increases across markets, with average revenue per user rising steadily. Third, content breadth: the company spent approximately $17 billion on content in 2025, funding an increasingly diverse slate spanning film, series, live sports, and gaming.

The ad-supported tier continues to gain traction, opening a new revenue stream that improves Netflix's unit economics without cannibalising premium subscriptions. Live events — including NFL games and boxing — have attracted advertisers willing to pay premium rates for Netflix's younger demographic.

Competitor consolidation (Paramount-Skydance acquiring WBD) could actually benefit Netflix by reducing the number of well-funded streaming rivals and potentially driving content licensing opportunities.