Key Highlights
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Netflix’s recent quarterly report revealed solid growth, even though its stock saw a rough beginning to 2026.
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The company’s advertising sector, focusing on streaming services, is rapidly gaining traction.
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There’s a pessimistic view suggesting the stock could experience a notable drop.
Netflix (NASDAQ:NFLX) has stumbled out of the gate in 2026, currently down about 19% since the year started, and it has lost over a third of its value in the past six months.
However, the core business is flourishing, with year-over-year sales growth picking up for the last three quarters. The real question, though, is whether this business performance justifies the stock’s high valuation. Considering the bearish perspective is one way to gauge the stock’s future. If investors start doubting Netflix’s ability to maintain pricing power in a saturated streaming environment, how low could the stock go?
Strong Momentum
It’s tough to poke holes in Netflix’s operations. In the fourth quarter, sales jumped 17.6% from the previous year, totaling $12.1 billion, a rise from 17.2% in the prior quarter and 15.9% earlier that year. Plus, the number of paid subscribers surged past 325 million, extending its brand’s international footprint.
Looking ahead, management projects a first-quarter revenue of $12.2 billion for 2026, indicating a year-over-year growth of 15.3%.
Operating margins are on the rise, with the full-year operating profit margin for 2025 reported at 29.5%, up from 26.7% in 2024, and expectations for a margin of 31.5% in 2026.
Notably, cash generation is robust. Free cash flow increased from $6.9 billion in 2024 to $9.5 billion in 2025.
Perhaps the most fascinating aspect of Netflix’s current growth is its advertising branch, which is not only expanding quickly but is also reducing the company’s reliance on constant subscription price hikes and membership growth.
In its fourth-quarter shareholder letter, Netflix indicated that advertising revenue might exceed $1.5 billion in 2025—a 150% increase—and could nearly double again in 2026.
Challenges Ahead
Yet, what about the negative outlook?
The primary risk to Netflix’s optimism lies in the growing competition from well-funded tech giants like Apple (with Apple TV) and Alphabet (via YouTube), as well as traditional media companies shifting from linear TV to streaming. Netflix acknowledges the entertainment market as highly competitive. As the streaming landscape gets busier, its ability to set prices may weaken, and churn rates could climb, especially if rivals bundle their services or offer larger discounts.
This competitive atmosphere could eventually show through in the financials, leading to slower revenue growth and tighter profit margins.
Current analyst predictions suggest earnings per share of around $3.12 for 2026. With a stock price around $76, that equates to nearly 24 times future earnings—a valuation that seems reasonable given the company’s still-robust revenue growth. However, any investor concern about competition could leave little room for error.
So, how far might the stock drop if investors start worrying about Netflix’s longevity in a fiercely competitive market? If fear takes hold, it’s plausible that Netflix could trade at a forward P/E ratio of 18 to 20 times. This could imply a stock price anywhere from approximately $56 to $62, representing a potential decrease of about 18% to 26%.
This isn’t a prediction; rather, it’s just a hypothetical method for translating valuation risks into a straightforward figure.
In reality, this level of downside risk might be acceptable for shareholders of a major entity like Netflix. Yet, it illustrates how drastically a stock can be reevaluated if certain fears arise.
Netflix is thriving, and its expanding advertising division offers a new growth avenue. Still, there’s lingering concern over how sustainable its pricing power may be as the streaming market grows increasingly crowded.
That’s essentially why I’m not buying now. There may be better cases for patience, waiting for a time when skepticism and prices may align more favorably. While it’s tricky to pinpoint the perfect moment, I’m fine waiting and investing elsewhere in the meantime.
Is Now the Time to Buy Netflix Stock?
Before making a decision on Netflix stock, here are a few points to consider.
According to Motley Fool Stock Advisor, the analyst team has highlighted ten stocks they believe are more attractive investments at this moment—and Netflix is not among them. These selected stocks are thought to have strong potential for returns over the coming years.
For historical context, consider that if you had invested $1,000 in Netflix when their recommendations began in December 2004, it would have grown substantially by now. Similarly, if you had invested in Nvidia in April 2005, that amount would be worth a significant sum today.
The important takeaway is that the average return from the stock advisor program is about 904%, vastly outperforming the S&P 500’s 194%. Don’t overlook the latest top ten list if you’re looking to invest in promising opportunities.
