Netflix Inc. (NASDAQ:NFLX)

The financial performance, as measured by economic profit, demonstrates a clear trajectory from negative values to positive territory over the observed period. Net operating profit after taxes (NOPAT) and invested capital both increased throughout the period, though at differing rates. The cost of capital also exhibited an increasing trend, albeit with a slight decrease in the final year.

Economic Profit

Economic profit began at a negative US$2,194,025 thousand in 2021 and deteriorated to a low of negative US$4,123,499 thousand in 2022. A modest improvement occurred in 2023, with economic profit reaching negative US$3,941,348 thousand. Significant gains were then realized in 2024, reducing the loss to negative US$1,687,010 thousand. Finally, in 2025, economic profit turned positive, reaching US$240,222 thousand. This indicates a strengthening ability to generate returns exceeding the cost of capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased from US$6,078,640 thousand in 2021 to US$4,988,408 thousand in 2022. It then experienced growth, reaching US$5,437,546 thousand in 2023, US$8,600,341 thousand in 2024, and culminating in US$11,242,756 thousand in 2025. This substantial increase in NOPAT is a primary driver of the eventual positive economic profit.

Cost of Capital

The cost of capital consistently increased from 23.78% in 2021 to 25.27% in 2024. However, a slight decrease to 25.19% was observed in 2025. Despite the overall upward trend, the reduction in the final year may suggest improved financing conditions or risk assessment.

Invested Capital

Invested capital showed a steady increase throughout the period, moving from US$34,785,312 thousand in 2021 to US$37,782,560 thousand in 2022, US$37,926,586 thousand in 2023, US$40,712,328 thousand in 2024, and finally US$43,678,946 thousand in 2025. This growth in invested capital suggests ongoing investment in the business.

The shift from negative to positive economic profit in 2025 is attributable to the combined effect of increasing NOPAT and a relatively stable cost of capital. While invested capital continued to grow, the substantial rise in profitability ultimately allowed the company to generate returns exceeding its cost of capital.

Net income and net operating profit after taxes (NOPAT) exhibited fluctuating performance over the five-year period. While both metrics moved in similar directions, NOPAT consistently reported higher values than net income throughout the observed timeframe.

Overall Trend

Both net income and NOPAT demonstrate a general upward trend when considering the beginning and end of the period. However, this progression was not linear, with a notable dip in 2022 before recovering and accelerating in subsequent years.

2021 to 2022

A decrease is observed in both net income and NOPAT from 2021 to 2022. Net income declined from US$5,116,228 thousand to US$4,491,924 thousand, representing a decrease of approximately 12.1%. NOPAT experienced a more substantial decrease, falling from US$6,078,640 thousand to US$4,988,408 thousand, a reduction of roughly 18.2%. This suggests a potential weakening of core operational profitability relative to overall net earnings during this period.

2022 to 2023

Both metrics showed recovery from 2022 to 2023. Net income increased to US$5,407,990 thousand, while NOPAT rose to US$5,437,546 thousand. The increase in NOPAT was more pronounced than the increase in net income, indicating improved operational efficiency or a shift in the composition of earnings.

2023 to 2025

A period of strong growth is evident from 2023 to 2025. Net income increased significantly, reaching US$10,981,201 thousand in 2025. NOPAT mirrored this growth, reaching US$11,242,756 thousand in 2025. The rate of increase accelerated in these years, suggesting successful strategic initiatives or favorable market conditions. The difference between NOPAT and net income widened during this period, potentially due to changes in non-operating items or tax implications.

NOPAT vs. Net Income

Throughout the entire period, NOPAT values consistently exceeded net income values. This difference likely reflects the impact of items such as interest expense and taxes, which are subtracted from NOPAT to arrive at net income. The widening gap between NOPAT and net income in later years warrants further investigation to understand the underlying drivers.

The provision for income taxes and cash operating taxes both demonstrate a consistent upward trend over the five-year period. However, the magnitude of increase differs between the two metrics, and the relationship between them evolves over time.

Provision for Income Taxes

The provision for income taxes increased from US$723.875 million in 2021 to US$1.741 billion in 2025. The growth was relatively steady from 2021 to 2023, increasing by approximately 7% and 3% respectively. A significant acceleration in growth is observed between 2023 and 2024, with an increase of 57%, and continues at a substantial rate into 2025, growing by 39%.

Cash Operating Taxes

Cash operating taxes exhibited a similar upward trajectory, rising from US$702.867 million in 2021 to US$2.311 billion in 2025. The increase from 2021 to 2022 was substantial, at 51%. Growth continued at a strong pace from 2022 to 2023 (36%) and 2023 to 2024 (35%). The rate of increase slows slightly from 2024 to 2025, at 18%.

Relationship between Provision and Cash Taxes

In 2021, the difference between the provision for income taxes and cash operating taxes was relatively small, at approximately US$21 million. This difference widened considerably in 2022, reaching US$356.559 million. The gap continued to expand in 2023, reaching US$647.772 million, and further increased to US$701.707 million in 2024. However, the difference narrowed somewhat in 2025 to US$570.000 million. This suggests a changing dynamic in the timing of tax payments relative to reported income tax expense.

The accelerating growth in both the provision for income taxes and cash operating taxes, particularly from 2023 onwards, warrants further investigation. The widening, then slight narrowing, gap between these two figures suggests potential shifts in deferred tax assets or liabilities, or changes in the utilization of tax credits or loss carryforwards. The substantial increases in both metrics indicate a growing tax burden, which could impact future profitability and cash flow.

The reported invested capital demonstrates a consistent upward trend over the five-year period. Total reported debt & leases and stockholders’ equity both contribute to this increase, though with differing patterns. An examination of these components reveals insights into the company’s capital structure evolution.

Invested Capital

Invested capital increased from US$34,785,312 thousand in 2021 to US$43,678,946 thousand in 2025. This represents a cumulative growth of approximately 25.6% over the period. The growth rate appears to be accelerating, with larger absolute increases observed in later years.

Total Reported Debt & Leases

Total reported debt & leases initially decreased from US$18,116,570 thousand in 2021 to US$16,931,564 thousand in 2022. However, it subsequently increased to US$17,994,974 thousand in 2024 before decreasing slightly to US$16,975,837 thousand in 2025. While fluctuations are present, the level remains relatively stable, fluctuating within a range of approximately US$1.1 million thousand over the five years.

Stockholders’ Equity

Stockholders’ equity exhibited a consistent upward trajectory, increasing from US$15,849,248 thousand in 2021 to US$26,615,488 thousand in 2025. This represents a cumulative growth of approximately 68.1%. The rate of increase appears to be accelerating, particularly between 2023 and 2025.

The increasing invested capital, coupled with the growth in stockholders’ equity and relatively stable debt levels, suggests a reliance on equity financing to fund growth. The acceleration in both invested capital and stockholders’ equity in the later years of the period indicates potentially increased investment activity or profitability contributing to retained earnings. The slight decrease in debt in the final year could indicate a strategic decision to reduce leverage or optimize the capital structure.

The economic spread ratio demonstrates a clear progression from negative values to positive territory over the observed period. Initially, the ratio is negative, indicating that the company’s return on invested capital is less than its cost of capital. However, the trend shows a consistent improvement, culminating in a positive ratio in the final year.

Economic Spread Ratio Trend

The economic spread ratio begins at -6.31% in 2021 and declines to -10.91% in 2022, suggesting a widening gap between the cost of capital and the return generated from invested capital. A slight improvement is noted in 2023, with the ratio moving to -10.39%. The most significant positive change occurs between 2023 and 2024, with the ratio increasing to -4.14%. This indicates a narrowing of the gap. Finally, in 2025, the ratio turns positive, reaching 0.55%, signifying that the company’s return on invested capital exceeds its cost of capital.

The movement in the economic spread ratio correlates with the trend in economic profit. While economic profit remains negative for the first four years, it transitions to a positive value in 2025, mirroring the positive shift in the economic spread ratio. This suggests a strong relationship between the two metrics.

Invested Capital

Invested capital consistently increases throughout the period, from US$34,785,312 thousand in 2021 to US$43,678,946 thousand in 2025. This growth in invested capital occurs alongside the improving economic spread ratio, indicating that the company is becoming more efficient in deploying its capital to generate returns.

The progression from negative to positive economic spread suggests improving financial performance and value creation. The increasing invested capital, coupled with the improving ratio, implies that the company is not only deploying more capital but also generating a higher return relative to its cost, ultimately leading to value creation for its investors.

The economic profit margin demonstrates a clear progression from negative values to positive territory over the observed five-year period. Initially, the metric reflects substantial economic losses, which diminish over time before transitioning to economic profit.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at -7.37%. This indicates that the company’s economic profit, considering the cost of capital, was negative as a percentage of adjusted revenues. The margin deteriorated significantly in 2022, reaching -13.02%, suggesting a widening gap between returns and the cost of capital. A slight improvement was noted in 2023, with the margin moving to -11.63%, though remaining negative. The trend continued positively in 2024, with the economic profit margin improving to -4.32%, indicating a reduction in economic losses. Finally, in 2025, the economic profit margin turned positive, reaching 0.53%, signifying that the company generated economic profit relative to its adjusted revenues.

The movement in economic profit margin closely mirrors the trend in economic profit itself. The substantial negative economic profit values in 2021 and 2022 correspond with the lowest margins, while the decreasing negative economic profit in 2023 and 2024 is reflected in the improving margins. The positive economic profit in 2025 directly results in the positive economic profit margin for that year.

Relationship to Adjusted Revenues

Adjusted revenues consistently increased throughout the period, rising from US$29,789,194 thousand in 2021 to US$45,437,953 thousand in 2025. However, revenue growth alone did not drive the improvement in the economic profit margin. The margin’s positive shift is primarily attributable to the reduction in economic losses, and ultimately, the generation of economic profit, indicating improved efficiency in capital utilization and profitability.

The progression from negative to positive economic profit margin suggests a strengthening financial performance and an increasing ability to generate returns exceeding the cost of capital. The company’s ability to achieve economic profitability in 2025 represents a significant positive development.