Nasdaq-100® Inside the Index: Netflix (NFLX)

VOL 1 • ISSUE 04 • JUNE 2026

Netflix built its name on ad-free streaming. Now most new members in its ad markets choose the plan with ads.

NFLX • Consumer Discretionary • Index Constituent

This Issue — NFLX

Netflix, a current constituent at ~1.48% index weight, is one of the world's largest subscription streaming services, with about 325 million paying memberships across 190+ countries. Revenue comes mainly from monthly fees on three plan tiers, with a fast-growing advertising business layered on the cheapest one. Operating margin reached 32.3% in Q1 2026, and the company guides full-year revenue to roughly $51 billion.

Key Figures 
 

Business Model & Revenue Drivers

What Netflix Actually Sells

The visible product is the subscription: a monthly membership across three tiers, from an ad-supported plan at $8.99 in the US to Standard and Premium. About 325 million memberships pay one of those fees every month. Netflix turned monthly streaming into a mass-market habit years before the major studios built competing services.

The newer product sits on top of the cheapest tier. Netflix sells advertising against the ad-supported plan, so the lower membership fee comes paired with ad revenue from the same viewer. That business is scaling quickly, and in markets where the ad plan is offered, more than 60% of new sign-ups choose it, per company disclosures.

Competitive Moat

Why This Is Hard to Replicate

Replicating Netflix means funding its content at its scale. The company plans about $20 billion of content spending in 2026, paid for by a membership base spanning four global regions. That spending funds the slate, and the slate is what keeps the memberships renewing.

What reinforces it over time is harder to copy than the catalog. Global reach, in-house technology for recommendations and advertising, and a viewing habit measured in hours reinforce one another. Netflix raised prices 8% to 13% across plans with churn staying stable. Few competing services match that combination of membership scale and content budget.

Operating Strengths

Three Structural Advantages

1. 51.9% Gross Margin — Reached 51.9% in Q1 2026, holding above 50%, as content cost discipline and operating leverage outpaced programming spend.
2. $196M Quarterly Capital Spending — Netflix spent just $196M on property and equipment in Q1 2026, the asset-light side of the streaming model.
3. 0.31× Net Debt to EBITDA — Fell to 0.31× by Q1 2026 from 2.83× in 2024, as cash built up and debt came down.

Growth Catalysts

What Grows the Business Next

Advertising is the headline. The ad business is expected to reach about $3 billion in 2026 and to surpass $5 billion by the end of 2027 (company guidance and consensus estimates), with the advertiser base up more than 70% in 2025 to over 4,000 advertisers. Each new ad-tier member represents upside on content Netflix already pays for.

• Live events and sports. A 2026 NFL slate including Christmas Day games, plus events like the World Baseball Classic that lifted net additions in Japan, create high-engagement moments that can carry advertising.
• Price increases. Recent increases of 8% to 13% across plans are expected to drive roughly 6.6% growth in average revenue per member for the year.
• New formats. Gaming, video podcasts, and vertical-video feeds add inventory the advertising business can sell, and the ad plan is set to reach 15 more countries in 2027.

Historical Context

Six Quarters of Revenue Growth 
 

Revenue rose every quarter through the period, lifted by price increases and a scaling advertising business, while operating margin recovered from a seasonal low. Netflix stopped reporting quarterly subscriber counts in 2025 and now centers disclosure on revenue and engagement.

Netflix spent years selling streaming without ads. Its fastest-growing business now sells them.

Valuation & Investment Thesis

Priced on the Ad and Margin Story

Netflix trades at about 23× forward earnings and 22× forward EBITDA. That multiple compressed after the cancelled Warner Bros. Discovery deal.

What the market is weighing is whether advertising and continued margin expansion justify the price. Management targets a 31.5% operating margin in 2026, and consensus sees margins near 34% by 2027.

Key Risks

What Could Change the Story

• Content cost inflation, with the 2026 content budget up about 10% to roughly $20 billion and marketing growing faster than revenue for three straight quarters.
• Advertising execution, since the ad business is still young and its fill rates and ad pricing remain low relative to mature platforms.
• Subscriber saturation, with global reach already near 45% and limited room to add members in some mature markets.
• Currency swings, given a large share of revenue earned abroad, a recurring headwind to reported results.
• Valuation sensitivity, with about 23× forward earnings already pricing in much of the advertising and margin-expansion story.

What This Means For You

The Index Angle, in Plain Terms

In your index fund: If you hold a fund that tracks the Nasdaq-100 Index®, you already own this.

• Index composition follows transparent eligibility criteria, and NFLX is a current constituent at ~1.48% index weight: roughly $1.48 of every $100 tracking the Nasdaq-100 sits in Netflix.
• It is the service you already stream, with about 325 million memberships worldwide across more than 190 countries.
• If you pay for the cheaper plan with ads, you are part of the business line growing fastest, the one Netflix expects to pass $5 billion by the end of 2027.

Decoding the Jargon

Two terms doing the heavy lifting in this issue.

• Average revenue per member (ARM). The average monthly fee Netflix collects per paying membership, about $11.68 (USD) globally. Price increases and ad revenue are lifting it, which is how revenue grows even without counting new subscribers.
• Operating margin. The share of revenue left after the costs of running the service, 32.3% in Q1 2026. Rising margins are why the same revenue produces more profit, and a number the market watches closely.

Bottom Line

Netflix sits in the Nasdaq-100® as a consumer name, not a tech one. What you own is two businesses in one: the monthly membership fee, plus the ads now sold to the same viewers.

About the Series

The Nasdaq-100® is a globally recognized index of 100 of the most innovative large cap companies listed on the Nasdaq Stock Market®. The Inside the Index series profiles one constituent each issue, from software to soft drinks and computer chips to potato chips, exploring what makes each business distinctive and the metrics investors should know.

SOURCES: NASDAQ GLOBAL INDEXES, BLOOMBERG, NETFLIX Q1 2026 RESULTS. DATA AS OF 6/17/2026.

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