Key Takeaways:
24/7 Wall St. set a $178.11 price target on Netflix, implying 140% upside after the stock fell to $74.35 on Q2 results.
"The fundamentals remain intact, and the ad business is only now starting to compound," the 24/7 Wall St. proprietary pricing model indicated. The model assigns 90% confidence to the buy recommendation, well above the $112.17 Wall Street consensus target.
Q2 revenue of $12.56 billion missed the $12.58 billion consensus by 0.17%, while EPS of 80 cents beat the 79-cent estimate by a penny. Free cash flow fell to $1.53 billion from $2.27 billion a year earlier, a 33% decline that triggered the post-earnings selloff. Management said content amortization was front-loaded in the first half and will moderate in the second, with full-year 2026 revenue guidance narrowed to $51 billion to $51.4 billion and free cash flow of roughly $12.5 billion.
The 90% confidence rating on the buy call puts the target well above the Street's $112.17 consensus. Netflix's 33% operating margin more than doubles Disney's 14.65%, and its ad-supported tier now captures over 60% of new sign-ups in ad markets, with revenue on track to reach $3 billion this year. The advertiser base has grown 70% year over year to more than 4,000 clients.
Why the Model Sees a Mispricing
Forward EPS of $9.8 at reasonable multiples leaves room above the current price, the model said. Regional growth remains broad-based, with Latin America up 21%, Asia-Pacific up 16%, Europe, the Middle East and Africa up 14%, and North America up 10%. Netflix deployed generative AI across roughly 300 titles and its full advertising lifecycle. The company completed $4.7 billion in buybacks during the quarter, its largest ever, with $27.1 billion remaining under authorization.
How Netflix Compares With Disney and Spotify
Disney trades at a trailing price-to-earnings ratio of 14 with a $173 billion market cap and an operating margin of 14.65%. Netflix runs at a 33.4% operating margin and 42.76% return on equity, yet trades at a trailing P/E of 29. That premium is earned, the model said, given Netflix's profitability is more than double Disney's.
Spotify, the subscription-first audio platform facing similar retention and ad-scaling dynamics, posted fiscal 2025 EPS of $10.51 on $17.2 billion in revenue. Its first-quarter free cash flow grew 55% year over year, contrasting with Netflix's decline. Spotify's premium valuation shows investors will pay up for scaling subscription platforms, the model said, arguing Netflix is undervalued.
The Risks and the Bull Case
Operating cash flow fell 28% year over year and capital expenditure rose 40%. Revenue growth has decelerated from 17.6% in the fourth quarter of 2025 to 13.4% in the second quarter of 2026, with third-quarter guidance of just 12%. A $1 billion debt maturity later this year needs refinancing. The model's bear case sits at $143.81.
The bull case prices Netflix at $191.05, supported by moderating content amortization in the second half and ad revenue tracking toward the $3 billion target. The 24/7 Wall St. model projects the stock could reach $268 by 2027, $402 by 2028 and $833 by 2030, assuming ad-tier scaling, live sports monetization and disciplined buybacks continue.
The buy call signals that the post-earnings selloff overshot the underlying business strength. Investors will watch third-quarter results due in October for evidence that ad revenue growth and margin expansion are on track.
