Microsoft Corporation (MSFT)vs Netflix, Inc. (NFLX)

Quick verdict

Microsoft (MSFT) and Netflix (NFLX) represent two different profiles within the technology and communication services space. MSFT trades on a trailing P/E of 23.37 and forward P/E of 16.83, against NFLX's 21.82 trailing and 32.49 forward P/E, reflecting the data's overall verdicts of an 'A' valuation grade for MSFT versus 'B' for NFLX. Both carry a 'high-quality' style tag, though NFLX is additionally flagged 'high-volatility', consistent with its beta of 1.517 versus MSFT's 1.13. NFLX shows stronger recent momentum, with a 106.6% one-year return versus MSFT's -13.81%, while MSFT's overall score of 2 compares to NFLX's 4 in this dataset (lower being more favourable here). Growth metrics favour NFLX, particularly its 27.09% three-year EPS CAGR versus MSFT's 15.51%.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Microsoft Corporation operates across three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing, spanning software, cloud infrastructure, and computing devices, as reflected in its Software - Infrastructure industry classification. Netflix, Inc. operates a single-focus global entertainment/streaming model, classified under Entertainment within Communication Services. MSFT's diversified segment structure supports its larger market capitalisation of $2.93 trillion versus NFLX's $290.3 billion. The two companies differ meaningfully in scale and revenue mix, with MSFT's broader enterprise and consumer technology footprint contrasting NFLX's concentrated subscription-entertainment model.

Valuation

MSFT screens as the cheaper name on forward earnings, with a forward P/E of 16.83 versus NFLX's 32.49, despite a higher trailing P/E of 23.37 against NFLX's 21.82. MSFT also carries a lower price-to-sales ratio (9.19 vs 6.19 is actually lower for NFLX) — specifically, NFLX's P/S of 6.19 is below MSFT's 9.19. On EV/EBITDA, NFLX is cheaper at 9.66 versus MSFT's 15.02. MSFT's PEG ratio of 0.79 is higher than NFLX's 0.64, suggesting NFLX's forward growth expectations are more favourably priced relative to its EPS growth. The dataset assigns MSFT an 'A' valuation verdict versus an implied 'B' for NFLX overall.

Growth profile

NFLX shows stronger growth across most metrics: a three-year revenue CAGR of 15.85% and five-year CAGR of 16.79%, versus MSFT's 14.93% and 13.18% respectively. The gap widens on earnings, with NFLX's three-year EPS CAGR of 27.09% well ahead of MSFT's 15.51%, though MSFT's five-year EPS CAGR of 8.88% trails NFLX's 14.39%. This supports the dataset's 'B' growth verdict assigned as NFLX's strength area (bestFor.growth: B), while MSFT's growth, though solid, is comparatively more moderate.

Profitability and quality

MSFT demonstrates superior margin structure, with gross margin of 68.31%, operating margin of 46.8%, and net margin of 39.34%, all higher than NFLX's 49.03%, 29.72%, and 28.52% respectively. However, NFLX posts a higher return on equity of 47.92% versus MSFT's 33.13%, while MSFT leads on return on invested capital at 20.96% versus NFLX's 24.36% (NFLX actually higher here). Both are tagged 'high-quality' in the dataset, with MSFT holding an 'A' quality verdict overall.

Balance-sheet risk

MSFT holds $48.2 billion in cash against $27.8 billion total debt, with a net debt/EBITDA of 1x, a current ratio of 1.28, and interest coverage of 19.92x. NFLX holds more cash at $79.9 billion but also carries higher total debt of $115.7 billion, resulting in a negative net debt/EBITDA of -0.82 (indicating net cash relative to EBITDA), a current ratio of 1.14, and interest coverage of 21.13x. Both received a 'B' balance sheet verdict, indicating broadly comparable financial resilience despite differing capital structures.

Price performance and shareholder returns

NFLX has delivered stronger recent returns, up 45% year-to-date and 106.6% over one year, compared with MSFT's 13.92% year-to-date and -13.81% over one year. Over three years, NFLX's annualised return of 38.86% outpaces MSFT's 4.69%, though over five years MSFT's annualised 36.22% exceeds NFLX's 30.63%. NFLX also experienced a steeper maximum five-year drawdown of -44.66%. Both carry a 'B' momentum verdict in the supplied data.

Which stock fits which investor

Based on the supplied verdicts, MSFT is flagged as best suited to value-focused and quality-focused considerations, holding 'A' grades in both valuation and quality. NFLX is flagged as best suited to growth- and income-focused considerations, aligning with its 'B' growth verdict, higher dividend yield of 1.77% versus MSFT's 0.9%, and stronger EPS growth figures. Investors weighing lower forward valuation and higher margins may note MSFT's profile, while those prioritising growth momentum and recent returns may note NFLX's, according to the dataset's classifications. This is descriptive only and not a recommendation.

• Value: MSFT
• Growth: NFLX
• Income: NFLX
• Quality: MSFT

Frequently asked questions

Which stock is cheaper on valuation?

According to the data, MSFT has a forward P/E of 16.83 versus NFLX's 32.49, and holds an overall 'A' valuation verdict compared with NFLX's lower rating, though NFLX trades at a lower EV/EBITDA of 9.66 versus MSFT's 15.02.

Which company is growing faster?

NFLX shows higher growth across most measures, including a three-year revenue CAGR of 15.85% versus MSFT's 14.93% and a three-year EPS CAGR of 27.09% versus MSFT's 15.51%, consistent with its 'B' growth verdict designation.

Which stock has stronger profitability margins?

MSFT has higher gross, operating and net margins at 68.31%, 46.8% and 39.34% respectively, compared with NFLX's 49.03%, 29.72% and 28.52%, though NFLX posts a higher ROE of 47.92% versus MSFT's 33.13%.

How do their balance sheets compare?

MSFT carries $27.8 billion total debt against $48.2 billion cash and a net debt/EBITDA of 1x, while NFLX carries $115.7 billion total debt against $79.9 billion cash and a net debt/EBITDA of -0.82. Both are rated 'B' on balance sheet strength in the supplied data.

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