Although Netflix (NFLX) reported a 16% year-over-year increase in first-quarter revenue, marking the company’s second-best quarterly performance in history, and its operating margin expanded by 50 basis points, the stock fell more than 11% in early trading due to relatively subdued guidance for the second quarter and the full year. Market disappointment over the guidance became the primary catalyst for the sell-off.
In the face of the stock’s pullback, multiple sell-side institutions view this as a good opportunity to buy the dip. Analysts generally point out that Netflix is currently trading at a highly attractive valuation, supported by its strong pricing power, vast growth headroom, and dominant position in the streaming space. Needham analyst Laura Martin reiterated a “Buy” rating, advising clients to focus on Netflix’s expansion into complementary businesses such as interactive voting, podcasts, and video games. She believes these initiatives will increase user engagement with Netflix’s intellectual property, and over the long term, help reduce subscriber churn and enhance pricing power. JPMorgan also recommended seizing the dip opportunity, with analyst Doug Anmuth noting that Netflix’s internal core metric for measuring user engagement recently hit an all-time high, and that its content library has exceeded expectations in improving subscriber retention.
Regarding why the guidance disappointed the market, Morgan Stanley analyst Sean Diffley explained that the lower second-quarter guidance and the lack of an upward revision to fiscal 2026 expectations are mainly tied to the lag effect of domestic price hikes in the U.S. — such adjustments typically take two to three months to fully reflect in financial data. Additionally, the high base effect from the same period last year and the company’s cautious expectation-setting early in the year also played a role. Seeking Alpha analyst Luca Socci believes Netflix deliberately adopted a conservative strategy, noting that the company did not incorporate increased interest income from fees paid by Warner Bros. into its guidance. This either reflects a conservative stance or signals an expansion of stock buybacks. Another analyst, StockBros Research, cautioned that the market overlooked the company’s forecast of a 31.5% operating profit margin for the full year. If Netflix achieves $51.2 billion in revenue, operating profit would reach $16.128 billion, representing 21% year-over-year growth.
Although Netflix lost the bidding war for Warner Bros. to Paramount Skydance, the company still views M&A as a top priority for growth, particularly in the field of artificial intelligence. Co-CEO Gregory Peters stated that Netflix has unique capabilities to invest in generative AI and generate returns for the business. Co-CEO Ted Sarandos added that acquiring InterPositive will accelerate the company’s capacity-building in generative AI, as the technology is specifically tailored for filmmakers and the filmmaking process.
