Netflix: Narrative vs. the Numbers

Netflix: Scenario Tree & Expected Value

An interactive companion to the case note "Narrative vs. the Numbers." Adjust the probabilities, terminal growth, and discount rate per branch — the expected value recomputes live. Not investment advice; a tool for turning a strategic-forces read into a probability-weighted valuation.

How this connects to Porter's Five Forces. The streaming "paradigm-shift" debate is, at bottom, a Porter's question about where bargaining power sits. We add an explicit sixth force — channel / platform power (the connected-TV aggregation layer: Roku, Amazon, Google, Apple, Samsung) because that is exactly the distribution chokepoint the classic five handle poorly. Each scenario below is a way the forces resolve: the Bull = Netflix's owned-relationship + content-scale moats hold the channel force at bay; the Bear/Deep-bear = rivalry, buyer power, and the channel force compress durable growth. The single number that carries that resolution into value is terminal growth.

1 · The scenario tree

Payoffs are objective — a discounted-cash-flow value of Netflix's engine-projected free cash flows for each terminal-growth assumption. Probabilities are yours to set (defaults are an illustrative "house view"). Each branch's discount rate follows the anchor — change the anchor and the whole tree (and the EV) re-discounts — unless you give a branch its own rate to apply a durability haircut to a fragile-floor outcome.

Scenario	Driver (the forces resolving)	Terminal g	Disc. rate	Value/sh	Return	Probability

Price $ Anchor rate %

2 · Expected value

Method. Value/share = [ Σ PV(projected FCF, 5y) + PV(Gordon terminal) + net cash ] ÷ shares, discounted at the per-branch rate. Netflix's projected cash-flow stream, net cash, and share count are fixed inputs from the valuation engine (FY2025 base, EDGAR-grounded); only terminal growth, discount rate, and probability vary here. Market-implied terminal growth = the single growth rate whose value equals today's price. Certainty-equivalent of EV = the single growth rate whose value equals the expected value — compare it to the market-implied figure to see how far your durability view sits from the market's. The convexity of value-in-(r−g) affects both equally, so it is not itself a source of edge.

Full case note: netflix-narrative-vs-numbers (§7). Figures are illustrative and conditional on the assumptions you set; this page does not recommend any action.