Netflix Spent $4.8 Billion Buying Back Stock in 1 Quarter. Here's What That Tells You.
Key Points
During Q3, management signaled to the investment community that it believes the shares trade at an attractive valuation.
Netflix’s scale allows it to spread content costs across a huge revenue and user base, supporting its impressive profitability.
The business is transitioning from rapid growth to moderate gains, which is why investors have cooled on the streaming stock.
Netflix (NASDAQ: NFLX) recently gave investors a fresh look at its financial performance. During the third quarter, the company posted year-over-year revenue growth of 11.8%. The $12.9 billion total revenue matched Wall Street estimates. Diluted earnings per share jumped 47% to $0.87, beating analyst forecasts.
Investors always pay close attention to those two headline numbers. But sometimes, it's smart to focus on certain actions that management took and what that could signal. This exercise can provide valuable insights that can impact your assessment of the streaming stock.
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On a related note, the business spent $4.8 billion on share repurchases in Q3. Here's what that data point tells you.
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A vote of confidence
Netflix repurchased 63.9 million shares throughout the third quarter. As noted, this amounted to $4.8 billion. The company started this cycle of buybacks in 2021, and it still has $22.3 billion left on its current authorization. But the recent activity was its largest repurchase ever.
The total repurchase amount was substantially higher than free cash flow, which came in at $2.9 billion. Consequently, the leadership team drew down its cash balance to bet on itself. That's a strong vote of confidence from the people who know the business best.
The overarching takeaway is that executives must believe the stock is cheap. If they didn't think this was the case, they would've repurchased far fewer shares or paid down debt, for instance.
On Sept. 30, Netflix shares traded 48% below their peak from June 2025. And during the third quarter, the stock's price-to-earnings ratio averaged 23.6. History says that this valuation is low. Directing capital to buybacks in this situation can have a greater impact to boost earnings per share, as it allows the company to more rapidly reduce its outstanding share count.
Dominance meets deceleration
Investors who have watched Netflix over the years and patiently waited to buy the stock now see a window of opportunity. If the leadership team is being aggressive, maybe they should also adopt this perspective. The valuation is hard to overlook.
Adding to the bull case is Netflix's dominance. With over 325 million subscribers (data from year-end 2025) and expected 2026 revenue of $51.1 billion, it operates with tremendous scale. That supports brand power. And it allows the business to spread its rising content costs across a huge user base.
This results in sizable profits. The company reported operating income of $12.6 billion through the first nine months of 2026, supporting an impressive operating margin of 33.4%. The business model is working.
But the bear case is also worth exploring. The market has soured on Netflix stock because it no longer promises outsize growth potential in an investment portfolio. A company that transitions from brisk expansion to moderate gains will be hit with weaker investor sentiment. We're watching this play out right before our eyes.
Management's Q4 revenue guidance calls for a year-over-year increase of 11.5%. This would mark the fourth consecutive quarter of decelerating top-line gains. After learning about this trend, it makes more sense why the valuation has come down. The years of 20% annual sales growth might be in the past.
The U.S. and Canada are saturated markets. And monetization is naturally softer in emerging parts of the world.
Competition is another concern. Netflix battles for viewer eyeballs not only with direct streaming rivals, but with the burgeoning popularity of short-form video content coming from dominant social media platforms. Attention spans are getting shorter, playing to Netflix's disadvantage.
Pricing power has been a major lever. However, it certainly has limits. The company has continued to raise subscription prices in recent years. At some point, further hikes risk pushing customers to cancel. This is especially true if engagement trends weaken.
Ask Netflix's C-suite what they think, and they'll tell you the stock is a bargain right now. Investors must decide if they believe them.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.