Netflix, Inc. looks clean. The balance sheet says around $14.5 billion in debt. The stock is around $100. Nothing alarming. Nothing that screams leverage. But that’s only if you take accounting at face value.
Because being off the balance sheet is something much more interesting, and possibly just as real: $7.4 billion in in-the-money stock options, The Information reported.
At the end of the year, Netflix had approximately 127.7 million vested options outstanding, with an average strike price of just $36.07. Now that shares are approaching $100, that gap translates into billions of embedded value (or cost, depending on how you look at it).
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Netflix itself sets that value at $7.4 billion.
According to current accounting, that does not appear as debt. It is treated as a compensation, a dilution, a footnote. But some valuation frameworks, such as UBS AG GroupThe HOLT model: treat these obligations more like debt. And if you apply that lens, Netflix’s leverage doesn’t just increase. Jump.
Add that $7.4 billion to the reported $14.5 billion, and suddenly the capital structure looks much heavier.
The rejection is obvious: options are not debt. There are no fixed payments, no maturity wall, or interest expenses.
But they are not economically harmless either.
They represent a claim on future value, one that existing shareholders effectively “ow” to employees. Whether it comes as dilution or is mentally capitalized as debt, the impact is real.
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And in a market that increasingly scrutinizes stock-based compensation (especially in the tech sector), that framework could start to matter more.
Netflix isn’t the only one using equity compensation. But it is one of the most visible cases in which the figures are large, very accurate and persistent over time.
That makes it a clear test case for a bigger question: What happens if investors stop treating equity compensation as a soft expense and start treating it as a hard obligation?
If that change happens, Netflix’s balance sheet may not change overnight.
But the way investors see it could be like this.
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