We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Are Rising Live Sports Costs a Margin Threat to Netflix Stockholders?
Read MoreHide Full Article
Key Takeaways
Netflix expects live programming to consume 5% of 2026 content spend but only 1% of viewing hours.
Content asset additions rose 32% to $9.8 billion, while free cash flow fell to $1.5 billion.
Disney's sports income fell 17% as programming costs rose 10%, while Amazon monetizes sports via ads.
Netflix's (NFLX - Free Report) expanding live sports slate is turning into a cost line investors can no longer treat as experimental. In September, the streamer kicked off its NFL schedule with the league's first regular-season game in Australia, part of an extension through the 2029-30 season covering a Week 1 game, a Thanksgiving Eve matchup, Christmas Day, a Week 18 finale and the NFL Honors. Netflix also confirmed that Tyson Fury and Anthony Joshua will fight live on Dec. 11, while 2027 brings exclusive U.S. and Canada rights to the FIFA Women's World Cup.
The economics are lopsided. Netflix expects live programming to absorb just over 5% of 2026 content spend while generating only about 1% of view hours. Its defense rests on acquisition: live events accounted for six of the 10 biggest new-member sign-up days over the past five years. Yet that payoff is episodic, while rights costs recur.
Cash outlays are rising faster than earnings. Additions to content assets jumped 32% year over year to $9.8 billion in the first half of 2026, outpacing the 11% rise in content amortization, while capital expenditure climbed 46% to $415 million. Second-quarter operating margin contracted 70 basis points to 33.4%, and free cash flow fell to $1.5 billion from $2.3 billion, partly due to higher cash taxes.
Guidance offers partial comfort. Netflix narrowed 2026 revenues to $51.0-$51.4 billion and maintained a 31.5% operating margin target versus 29.5% in 2025, with ad revenues expected to double to about $3 billion. Third-quarter margin is projected at 33.2%.
However, the full-year target implies a fourth-quarter margin near 27%, in a quarter loaded with NFL holiday games and the Fury-Joshua bout. With content obligations at $25.1 billion and a cash content-to-amortization ratio of about 1.1x, sports escalation could test margin expansion beyond 2026.
How Disney and Amazon Are Managing Live Sports Costs
Disney (DIS - Free Report) offers a direct read on sports cost inflation. In third-quarter fiscal 2026, Disney's Sports segment operating income fell 17% to $858 million, as programming and production costs rose 10% to $3.05 billion despite 4% revenue growth. Disney is pushing more ESPN games onto Disney+ this fall to broaden reach. Amazon (AMZN - Free Report) presents a monetization-led contrast. Amazon's advertising revenues grew 26% year over year to $19.8 billion in the second quarter of 2026, with Thursday Night Football, NBA, WNBA and NASCAR inventory selling out. However, Amazon does not separately disclose the profitability of its Prime Video sports rights.
Netflix’s valuation remains elevated, with the stock trading at a forward 12-month price/sales ratio of 5.04X versus the industry’s 3.52X. NFLX carries a Value Score of D.
NFLX’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NFLX’s 2026 earnings is pegged at $3.59 per share and remains unchanged over the past 30 days. This indicates a 41.9% increase from the previous year.
View the Zacks #1 Rank List
Image: Bigstock
Are Rising Live Sports Costs a Margin Threat to Netflix Stockholders?
Key Takeaways
Netflix's (NFLX - Free Report) expanding live sports slate is turning into a cost line investors can no longer treat as experimental. In September, the streamer kicked off its NFL schedule with the league's first regular-season game in Australia, part of an extension through the 2029-30 season covering a Week 1 game, a Thanksgiving Eve matchup, Christmas Day, a Week 18 finale and the NFL Honors. Netflix also confirmed that Tyson Fury and Anthony Joshua will fight live on Dec. 11, while 2027 brings exclusive U.S. and Canada rights to the FIFA Women's World Cup.
The economics are lopsided. Netflix expects live programming to absorb just over 5% of 2026 content spend while generating only about 1% of view hours. Its defense rests on acquisition: live events accounted for six of the 10 biggest new-member sign-up days over the past five years. Yet that payoff is episodic, while rights costs recur.
Cash outlays are rising faster than earnings. Additions to content assets jumped 32% year over year to $9.8 billion in the first half of 2026, outpacing the 11% rise in content amortization, while capital expenditure climbed 46% to $415 million. Second-quarter operating margin contracted 70 basis points to 33.4%, and free cash flow fell to $1.5 billion from $2.3 billion, partly due to higher cash taxes.
Guidance offers partial comfort. Netflix narrowed 2026 revenues to $51.0-$51.4 billion and maintained a 31.5% operating margin target versus 29.5% in 2025, with ad revenues expected to double to about $3 billion. Third-quarter margin is projected at 33.2%.
However, the full-year target implies a fourth-quarter margin near 27%, in a quarter loaded with NFL holiday games and the Fury-Joshua bout. With content obligations at $25.1 billion and a cash content-to-amortization ratio of about 1.1x, sports escalation could test margin expansion beyond 2026.
How Disney and Amazon Are Managing Live Sports Costs
Disney (DIS - Free Report) offers a direct read on sports cost inflation. In third-quarter fiscal 2026, Disney's Sports segment operating income fell 17% to $858 million, as programming and production costs rose 10% to $3.05 billion despite 4% revenue growth. Disney is pushing more ESPN games onto Disney+ this fall to broaden reach. Amazon (AMZN - Free Report) presents a monetization-led contrast. Amazon's advertising revenues grew 26% year over year to $19.8 billion in the second quarter of 2026, with Thursday Night Football, NBA, WNBA and NASCAR inventory selling out. However, Amazon does not separately disclose the profitability of its Prime Video sports rights.
NFLX’s Price Performance, Valuation & Estimates
Netflix’s shares have plunged 28% year to date, underperforming the Zacks Broadcast Radio and Television industry and Zacks Consumer Discretionary sector’s decline of 20.1% and 14.7%, respectively.
NFLX’s YTD Price Performance
Image Source: Zacks Investment Research
Netflix’s valuation remains elevated, with the stock trading at a forward 12-month price/sales ratio of 5.04X versus the industry’s 3.52X. NFLX carries a Value Score of D.
NFLX’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NFLX’s 2026 earnings is pegged at $3.59 per share and remains unchanged over the past 30 days. This indicates a 41.9% increase from the previous year.
Netflix, Inc. Price and Consensus
Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote
NFLX currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.