Goldman Sachs upgrades Netflix to Buy, stating "the current risk-reward profile is more favorable."

Investing.com - Goldman Sachs upgrades Netflix’s rating from Neutral to Buy, and raises its 12-month target price from $100 to $120. This Wall Street firm believes that ahead of Netflix’s upcoming Q1 earnings report, the streaming giant’s stock is “more favorable on risk/reward from current levels.”

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At the time of the rating upgrade, Netflix’s share price has fallen 18% over the past six months. Goldman Sachs partially attributes this decline to pressure stemming from the streaming and production assets deal of Warner Bros. Discovery, which the company has now abandoned.

With Netflix exiting the deal—and receiving approximately $2.8 billion in merger termination fees from PSKY—Goldman analysts believe the company will return to an “independent execution of its story,” and could enter a period of positive earnings estimate revisions.

The firm’s bullish view rests on three key pillars. First, analysts expect sustained low double-digit revenue growth over the next three to four years, driven jointly by an increase in paid subscribers, higher subscription revenue per member, and rapid expansion of the advertising business.

Goldman expects ad revenue to rise from about $1.5 billion in 2025 to about $4.5 billion in 2027, reaching nearly $9.5 billion by 2030. In March 2026, Netflix raised prices on three major U.S. subscription tiers, and analysts estimate this could generate $3.0 billion in incremental revenue in total across 2026 and 2027.

Second, Goldman expects profit margins to expand steadily, forecasting that “over the next 3 years, GAAP operating margin will expand by about 250 basis points per year,” supported by slower content spending growth and broader cost control.

The firm also believes the company’s prior guidance for 2026 free cash flow of about $11 billion may have been somewhat conservative, “especially now that the company has already exited the prior M&A plans.”

Finally, analysts also emphasized the potential for large-scale capital returns. Since 2023, Netflix has cumulatively repurchased $21 billion in stock, averaging roughly 90% of annual free cash flow, before pausing buybacks during the Warner Bros. Discovery acquisition process.

Goldman lays out a scenario in which Netflix will “repurchase about 20-25% of its current market value over the next 5 years,” which would provide strong support for earnings per share.

On valuation, Goldman noted that Netflix’s forward P/E multiple growth is about 1.1x, well below its five-year historical average of about 1.65x, and also below the level before the acquisition announcement, which the firm views as an entry point.

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