Netflix (NASDAQ: NFLX) is trading at just 17.6 times its trailing twelve-month earnings, a steep discount to the S&P 500’s multiple of 21.9 times.
That gap is not trivial: at the close of September, Netflix’s price-to-earnings ratio of 19.5 was lower than at every quarter-end since late 2016 except one.
The compressed valuation reflects a bruising stretch for shareholders, with the stock shedding 44.8% over the past year even as the broader S&P 500 returned 12.2%.
Yet the underlying business has continued to expand, pulling in $49.7 billion in revenue over the twelve months ended September 30, 2026, a gain of 14.7% from the prior comparable period.
The faster-moving engine inside that broader operation is advertising, the tier of Netflix subscriptions that carries ads, which management says has been growing at more than 80% through 2026.
For context, that rate dwarfs the 11.8% year-over-year revenue growth the company reported for its fiscal third quarter of 2026.
The advertising business carries additional upside that has not yet converted to revenue: members on the ad-supported plan currently generate less per subscriber than those on the standard plan, though management confirmed that gap is narrowing.
Executives have described that difference as under-realized revenue growth in the near term, meaning money the company expects to capture as the two tiers converge in monetization.
Netflix is also preparing its first geographic expansion of the ads offering since the plan originally launched, which could bring more subscribers and advertisers into the fold.
Still, the advertising operation has not yet lived up to its own targets, and the October 20, 2026 earnings call made that clear without softening the language.
Management acknowledged on that call that the company is “currently a bit behind its aggressive target for the year,” citing delays in rollout and partner integrations for certain new ads products.
Those delays prompted Netflix to trim its 2026 revenue and free cash flow guidance, with weaker ad revenue expectations at the root of both reductions.
Despite that revision, management maintained that its core financial objectives remain intact, including double-digit revenue growth, margin expansion, and stronger free cash flow generation.
In markets where Netflix already holds deep penetration, executives said future growth will lean increasingly on advertising and rising revenue per member rather than subscriber additions.
Newer markets, including India, Indonesia, and Colombia, still offer meaningful room to grow the subscriber base, providing a separate avenue for volume-driven revenue expansion.
The January 2027 earnings report will carry particular weight, as Netflix has said it intends to release its full 2027 guidance, including margin targets, alongside those results.
How advertising scales from here, and what management projects for the year ahead, will likely define whether the current valuation discount begins to close or widens further.
