Using the Earnings Power Value framework with a WACC of 8.2% and normalized earnings of $9.1B, Netflix, Inc. has a fair value of $24.33 per share. The EPV range is $20.37 – $30.06 based on WACC sensitivity (6.7% – 9.7%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 9,056 | 9,056 | 9,056 |
| (/) WACC | 9.7% | 8.2% | 6.7% |
| Enterprise Value | 93,382 | 110,469 | 135,209 |
| (-) Net debt | 5,429 | 5,429 | 5,429 |
| Equity Value | 87,953 | 105,039 | 129,780 |
| (/) Outstanding shares | 4,317 | 4,317 | 4,317 |
| Fair Price | $20.37 | $24.33 | $30.06 |
Earnings Power Value (EPV) estimates what a company is worth based on its current normalized earnings, assuming zero growth. It values the business as a perpetuity: Normalized Earnings / WACC. This gives a conservative floor value — the company's worth if it never grows but maintains its current profitability.
The model normalizes earnings by: (1) using sustainable gross margins (5-year average) applied to current revenue, (2) deducting maintenance-level operating expenses (average R&D + SG&A as % of revenue), (3) applying the average effective tax rate, and (4) subtracting the average excess of CapEx over D&A (net reinvestment needed to maintain current capacity).
EPV is most useful as a comparison anchor: if the market price is below EPV, the stock may be undervalued even without any growth. If market price exceeds EPV, the premium reflects growth expectations — which may or may not materialize.