Is Netflix's 17% Pullback Creating a Mispriced Growth Opportunity?

The recent 17% correction in Netflix's stock price has reignited debates about whether the streaming giant is undervalued or overhyped. With the company reporting robust revenue growth and expanding its ad-supported business, bulls argue that the pullback presents a buying opportunity. However, a closer look at discounted cash flow (DCF) models and market expectations reveals a stark divergence between narrative-driven optimism and hard-edged valuation logic.

The Bullish Narrative: Growth, Content, and Ad Revenue

Netflix's Q3 2025 results underscore its enduring appeal as a growth stock. Revenue rose 17% year-over-year to $11.51 billion, driven by strong performance in key markets like the U.S., Canada, and Europe. The company also reported record ad sales, with management projecting that ad revenue could more than double in 2025. Content-wise, hits like KPop Demon Hunters and Wednesday Season 2 have reinforced Netflix's ability to deliver consistent subscriber engagement.

Analysts are bullish on Netflix's long-term prospects. Projections suggest revenue will grow by 16% in 2025 and 13% in 2026, while operating income is expected to rise by 26% in 2025. These figures are bolstered by strategic moves such as partnerships with telecom companies and the expansion of ad-supported tiers. For many investors, these fundamentals justify a premium valuation, even as the stock trades at a price-to-earnings ratio of 51.

The DCF Dilemma: Overvaluation or Mispricing?

Despite the bullish narrative, DCF models tell a different story. Using a 11% discount rate-a standard benchmark for high-growth tech stocks-analysts estimate Netflix's intrinsic value at $86.48 per share. This suggests the stock is overvalued by 27.2% relative to its current price. Another model, which incorporates similar assumptions, places intrinsic value at $224.61 per share, still implying a significant gap between market price and projected cash flows.

The disconnect stems from divergent assumptions about growth sustainability. While Netflix's free cash flow (FCF) is expected to rise from $9 billion in 2025 to $11 billion by 2029, DCF models typically apply conservative long-term growth rates (around 3% for EBITDA). This contrasts with the market's apparent belief in higher, more prolonged growth. For instance, Morningstar's fair value estimate of $750 per share assumes a much more aggressive trajectory, one that may not account for near-term risks like regulatory hurdles from its $82.7 billion Warner Bros. Discovery acquisition.

Valuation Divergence: A Clash of Paradigms

The core issue lies in how investors interpret Netflix's future. Bulls focus on its ability to monetize global content demand, expand ad revenue, and leverage strategic partnerships. They argue that the 17% pullback corrects for short-term overenthusiasm following a 40% rally earlier in the year. Bears, however, highlight structural challenges: a one-time $1.1 billion tax expense in Q3 2025 (linked to Brazil's outbound payment tax), downward revisions to operating margin forecasts, and the inherent risks of scaling ad-supported tiers.

DCF models, by design, prioritize conservative cash flow projections and risk-adjusted discount rates. Yet they often struggle to capture the intangible value of Netflix's content library or its first-mover advantage in global streaming. This creates a valuation gap: the market rewards Netflix's growth potential, while DCF models penalize it for unmet margin targets and regulatory uncertainties.

Conclusion: Opportunity or Overreach?

Netflix's 17% pullback is a textbook example of market volatility in a high-growth stock. For investors who believe in the company's ability to execute on its content and ad strategies, the correction could represent a buying opportunity. However, those who rely on DCF analysis may view the stock as overvalued, given the mismatch between projected cash flows and current multiples.

Ultimately, the answer hinges on one question: Does the market's optimism about Netflix's future growth justify a premium valuation, or is it pricing in outcomes that DCF models deem improbable? As with all high-growth stocks, the answer lies in the balance between narrative and numbers.