Justification for Free Cash Flow & Final Stock Price :

Mckinsey Free Cash Flow & Implications for Netflix: 

The McKinsey free cash flow model provides a detailed framework for analyzing Netflix’s long-term financial outlook. By forecasting key drivers of free cash flow many years into the future, the model gives insight into the sustainability of Netflix’s high growth and the risks going forward. Specifically, the ability to continually grow paid streaming subscribers both domestically and internationally is key. Even slight changes to assumptions around future subscriber growth rates, monthly fees per user, or content/marketing costs as a percentage of revenue can significantly impact projected free cash flows.


The output of the McKinsey model is an estimated intrinsic value for Netflix’s shares based on those future free cash flow projections. However, the actual market price at which Netflix trades will be influenced by broader investor sentiment, perceptions around competition, interest rates, and more qualitative factors. Therefore, while the McKinsey model provides an analytical approach to valuing Netflix, management must also pay close attention to evolving consumer streaming behaviors, competitors’ offerings, and general investor appetite for high-growth stocks. Small changes in growth assumptions or perceived risks can drastically impact Netflix’s realizable market value, despite what the technical discounted cash flow model may output as an estimated intrinsic value target. Moving forward, Netflix faces risks around slowing subscriber growth, thin operating margins, and heavy spending requirements so the cash flow model helps quantify both upside and downside scenarios.