Netflix Has $27 Billion Left To Buy Back Its Own Stock –…

The Warner Bros. breakup helped pay for it

The authorization took shape quickly, and a deal that did not happen is a big piece of the story. Netflix had been trying to acquire Warner Bros., but it chose not to increase its offer, and the deal fell through early this year. The breakup came with a $2.8 billion termination fee received by Netflix — money that drove management’s 2026 free cash flow forecast up to about $12.5 billion, from a prior $11 billion.

Netflix had suspended its buyback during the pursuit, and it resumed in the first quarter, spending $1.3 billion and leaving $6.8 billion on its authorization. In April, the board added another $25 billion to a repurchase program that doesn’t have an expiration date. The company put the new room to work immediately. It spent $4.7 billion on its own s in the second quarter, more than triple the previous quarter’s outlay and its biggest quarter of repurchases to date.

Also worth mentioning: Netflix paid an average of about $88 per for that stock. With the stock around $76 today, the same money retires more s than it did a few months ago.

Can Netflix keep buying at this pace?

Not at the second quarter’s rate. Netflix brought in $1.5 billion of free cash flow (the cash its operations produce minus equipment purchases) during the quarter, down from $2.3 billion a year earlier. The drop included larger cash tax payments linked partly to that termination fee. So the quarter’s buying was about three times the cash the business produced during it, with the difference coming out of the additional cash the Warner Bros. episode left behind.

The record quarter, in my view, says more about that one-time fee than about a new normal.

Management forecasts about $12.5 billion of free cash flow for the full year. By comparison, the $27.1 billion in authorizations amounts to a little more than two years of the cash Netflix produces after paying for all its content.

In the end, the authorization is less a promise of more record quarters than a long runway of consistent buying.

The count is shrinking more quickly

The buying is showing up in the count. Netflix averaged about 4.26 billion fully diluted s in the second quarter, down from 4.35 billion a year before, a drop of about 2%.

Two percent might not seem much. But a count shrinking at that rate contributes about two points to per-growth every year on top of whatever the business itself generates.

And if Netflix spends the entire $27.1 billion anywhere near today’s price, the effect grows. About 8% fewer s would mean about 9% higher earnings per on the same profits.

Netflix Stock Quote

NASDAQ: NFLX

Netflix

Premium Feature

Moneyball Superscore

79/100

Today’s Change

(-4.67%) $-3.52

Current Price

$71.79

Key Data Points

Market Cap

$299BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.

Day’s Range

$70.11 – $72.38

52wk Range

$65.08 – $124.86

Volume

114.4M

Avg Vol

40M

Gross Margin

49.53%

The second quarter showed the effect. Net income climbed about 9% year over year, while earnings per rose 11%. The buyback explains the difference.

Is a $27 billion buyback authorization a reason to buy the stock, then? Not by itself. A buyback, of course, magnifies per-results. It does not change the direction of the business.

And the direction is what concerns me. Netflix’s revenue growth was 16% in the first quarter and 13% in the second, a slowdown that arguably matters more than any repurchase program — and growth might cool a bit more from here. At about 20 times next year’s expected earnings, the stock is priced for that growth rate to level off — something the buyback has no bearing on.

I’m pleased to see Netflix returning cash at prices well under what it paid a few months ago. But I don’t buy a stock for its buyback, and I’m not buying this one today.