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Streaming giant Netflix has been the great disruptor in the world of home entertainment over the last decade or so. It is therefore jarring to see a big plank of the company’s current strategy seemingly ape the linear TV model which it helped overturn as it embraces advertising and live sports events.
At the same time, the company losing out in a bid battle with Paramount Skydance over Warner Bros Discovery, while well received by investors who were unconvinced on the deal’s merits, has left it at a crossroads.
The takeover was intended to boost Netflix’ footprint in prestige TV through Warner Bros’ HBO business as well as giving it a stronger brand identity and reinforcing its leading position in the streaming space.
The advertising growth story
Can the company continue to grow organically having failed to secure a deal for Warner Bros? The answer may well depend on advertising. Netflix first launched an ad-supported tier in November 2022, initially rolling it out across 12 countries including the UK and US. This was a response to a stagnating user base (which contracted for the first time in 10 years at the start of that year) and similar plans on the part of competitors. It also created a more affordable way of accessing its platform, including for those caught up in its crackdown on password sharing among friends and family.
While it encountered a healthy degree of scepticism at the time this approach has proved highly successful both in terms of reviving user growth but also diversifying its revenue base. The company generated $1.5 billion in ad revenue in 2025 and expects this to double to $3 billion in 2026 – with an internal goal of hitting $9 billion by 2030.
Bank of American Merrill Lynch analyst Jessica Reif Ehrlich says: “Netflix is further scaling the tier internationally by announcing plans to enter around 15 additional countries (representing ~10% of global advertising) and is testing ad personalization based on viewing behaviour.
“Netflix is continuing to improve its advertising offering with new formats and more technology, and the company believes it can actually decrease ad loads while increasing ad revenue through addressable, targeted ads and increased sponsorship.”
However, the company’s first-quarter earnings announcement announced in April 2026 disappointed investors. The shares dropped nearly 10% amid an underwhelming short- and medium-term outlook as the second-quarter outlook came in below expectations and full-year guidance was largely left unchanged. As a kicker, the departure of co-founder and long-time CEO Reed Hastings added an element of uncertainty for the market.
Earlier in its growth journey Netflix spent exceptionally heavily on content to attract subscribers and this meant it was typically negative in terms of free cash flow. That has changed, guidance for 2026 is for free cash flow of $12.5 billion. Its financial mission statement specifically references growing free cash flow alongside sustaining revenue growth and growing margins.
The company offered a demonstration of its financial strength with its recently announced $25 billion share buyback. It does not pay dividends and has never done so in its time on the stock market.
Bolstering its live content
Netflix is still allocating plenty of cash to content, including, increasingly, to live sporting events. These are prized because they draw massive, immediate and concentrated viewership which is not provided by other forms of content and is therefore highly attractive to advertisers. It recently secured three additional NFL games for the upcoming American football season.
For the time being Netflix has focused on one-off broadcasts rather than bidding for rights to a full season of games. It is also looking at other forms of live and daily programming, including comedy and awards shows, to help ensure users are regularly engaging with the platform.
It remains a competitive market – with Amazon Prime Video, Disney, Paramount (likely boosted by the acquisition of Warner Bros Discovery) and Apple TV its main competitors. Netflix has around 325 million global subscribers, Prime Video 220 million (within a broader Prime membership) and Disney 196 million.
Outside of the big streaming platforms, Netflix faces competition for eyeballs with the likes of YouTube, Instagram and TikTok. It has responded by launching a dedicated vertical video feed called ‘clips’ into its mobile app as a way of funnelling people into its own long-from content.
How is Netflix using AI?
Netflix is using AI in the production of content, for now largely in areas like special effects and pre-production, but it has been put to use more extensively in areas like translation, to personalise content and advertising and in streaming infrastructure.
Growth potential and valuation
Despite being the leader in streaming, Bank of America Merrill Lynch estimates the company represents 5% of global TV viewership and has captured less than 45% of its addressable market.
As the chart shows, despite material gains for the share price in the last 10 years, Netflix’ valuation has actually contracted as earnings have grown. Though at 23 times forecast 2026 earnings, the shares do trade at a premium to both Paramount Skydance at 16.1 times and Disney at 14.1 times.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...
