Netflix Looks More Mature Than The Market Thinks (NASDAQ:NFLX)

Core Insights - Netflix, Inc. is a well-recognized company with a long-standing presence in households [1] - Various methods exist for sell-side analysts to determine a company's fair value, including DCF, multiples approach, and reverse valuation [1] - The Free Cash Flow to Equity (FCFE) model is utilized to assess what truly belongs to shareholders, focusing on earnings, amortization, and investments [1] Valuation Methods - The DCF method requires precise assumptions, which can lead to biases such as overconfidence and hindsight [1] - The multiples approach compares a company with its peers but assumes those peers are fairly priced, which is often not the case [1] - Reverse valuation starts from the market price and discount rate, revealing the free cash flow assumptions already incorporated into the price [1] FCFE Model - The FCFE model is defined as Earnings + Amortization – CAPEX – average acquisition cost = FCFE, ignoring working capital and debt changes [1] - Forecasts utilize the H-model, which features a 10-year two-stage growth fade with terminal growth equal to the risk-free rate [1] - All cash flows are discounted by the cost of equity, calculated as RFR × beta + 5% ERP, providing a clear picture of the business's true worth [1]