The recent performance of streaming giant Netflix (NFLX) has drawn significant market attention. Netflix’s stock price has declined approximately 32% from its mid-2025 peak, leading investors to question: Is this a signal of a trend reversal, or merely a deep correction within a long-term upward channel?
This stock adjustment primarily stems from two factors. First, market concerns over a massive acquisition: In December 2025, Netflix announced plans to acquire Warner Bros. Discovery (WBD) for about $82.7 billion (reportedly paid via a combination of cash and stock). While this move would inject top-tier IP like Harry Potter, The Lord of the Rings, and Game of Thrones into its content library, the colossal deal (particularly involving debt financing) has raised market worries about Netflix’s financial structure, integration risks, and potential stringent antitrust scrutiny.
Other than that, a natural correction from elevated valuations: After a substantial rally in 2025, Netflix’s valuation reached high levels. This pullback can also be seen as a phased digestion of market sentiment, making its valuation more reasonable.
Despite stock price volatility, Netflix’s core fundamentals remain solid. Its global paid subscriber base has surpassed 300 million, with scale advantages and robust content investment capabilities continuously reinforcing its leading position. Coupled with successful diversified pricing and advertising business, the low-cost ad-supported tier launched in 2022 ($7.99 per month) has become a primary driver of user growth, accounting for about half of new sign-ups in some markets.
Netflix’s appeal lies in its long-term value growth logic: As the ad-tier membership base expands, Netflix possesses sustained pricing power for the advertising slots it sells to businesses. Management has previously issued guidance that advertising revenue, after doubling in 2024, was expected to more than double again in 2025. Beyond the potential acquisition, Netflix’s own investments in premium content like live sports (e.g., boxing, NFL) aim to enhance platform attractiveness and advertising premium capability.
From a valuation perspective, the decline has created a more attractive entry point. Based on earnings per share of $2.39 over the past four quarters, the current price-to-earnings (P/E) ratio is approximately 38, which is already below its three-year average P/E of 44.8. Wall Street consensus estimates indicate that Netflix’s 2026 earnings per share could reach $3.23. Calculated on this basis, its forward P/E ratio is only about 28.1. This implies that if the 2026 earnings estimate is achieved, the stock price would need to rise about 35% just to return to the current P/E level of 38.
For investors, the decision depends on the investment horizon. For long-term investors, Netflix’s stock has delivered astounding cumulative gains since its 2002 IPO, and history has proven its ability to weather short-term fluctuations. The current “deep discount” driven by concern is not common. For investors who believe in its streaming moat, the long-term monetization potential of its advertising business, and content integration capabilities, the current range may present an opportunity for gradual accumulation. The Q4 2025 earnings report (expected to set financial records) due later in January and progress in the advertising business could serve as positive catalysts.
For short-term speculators, while the stock posted double-digit percentage gains within six market days after the January earnings report in four of the past five years, the lesson from January 2022—when the stock plunged over 31% post-earnings—demonstrates that risks in short-term earnings speculation persist. Particularly with the acquisition deal still pending, specific details in the earnings report could trigger sharp volatility.
Overall, investors can consider building a position gradually based on long-term value, while closely watching the confirmation of advertising business performance and future guidance in the Jan. 20 earnings report. They should also be psychologically prepared for short-term volatility stemming from news related to the acquisition deal. In the marathon of streaming competition, Netflix remains one of the strongest contenders.
