Trading at approximately $76 per share, Netflix (NFLX) now sits 42% below its peak of $130.23 reached just over a year ago. Yet over that same period, its revenue, profits, and advertising business have all continued to grow. This rare divergence — strengthening fundamentals against a weakening stock price — makes the upcoming second-quarter earnings report, scheduled for July 16, particularly critical.
A Business That Keeps Accelerating
Netflix’s fundamentals remain solid. In the first quarter of 2026, revenue rose 16% year-over-year to $12.25 billion, while operating margin expanded from 31.7% to 32.3%. Although the company no longer discloses subscriber counts on a quarterly basis, paid memberships have surpassed 325 million, reaching a viewing audience of nearly 1 billion people.
The advertising business is the biggest highlight. Netflix expects ad revenue to roughly double to about $3 billion in 2026, with more than 4,000 advertisers — up about 70% year-over-year. The ad-supported tier has become the most popular choice for new subscribers in markets where it is offered. The company’s full-year revenue guidance stands at $50.7 billion to $51.7 billion (representing 12% to 14% growth), with an operating margin target of approximately 31.5%.
Why Has the Stock Dropped 42%?
Two reasons. First, expectations were set impossibly high. Entering 2025, the market priced Netflix too optimistically, and once its guidance stopped exceeding an ever-rising bar, that valuation premium began to unwind. Second, a prolonged takeover battle distracted the market. Netflix was involved in bidding for Warner Bros. studios and HBO Max (a deal with an equity value of approximately $72 billion), which dragged on for months. Although the company ultimately walked away and pivoted to share buybacks, the “uncertainty premium” took a toll on the stock.
Valuation Returns to a Reasonable Range
After this pullback, Netflix now trades at roughly 25 times earnings and about 23 times forward earnings. For a company still delivering double-digit revenue growth, expanding margins, and a doubling advertising business, this valuation stands in stark contrast to the lofty multiples seen at its peak. The company’s free cash flow is at record highs, and it is using buybacks to boost per-share earnings.
For the July 16 second-quarter report, the market expects revenue of approximately $12.6 billion and earnings per share to improve from $0.72 to $0.79. However, buying before earnings is essentially a bet on a single day’s outcome — if revenue growth, ad progress, or forward guidance disappoints, the stock could come under pressure even at a reasonable valuation.
Bottom Line
For long-term investors, the current valuation has become attractive. After cycling from exuberance back to rationality, Netflix is now priced much closer to its fundamental reality. But the premise matters: this is not a bet on a short-term bounce following the earnings report — the stock could just as easily fall further. If you believe in Netflix’s long-term story — building a second growth engine through advertising on top of its 325 million-member base — then current levels may represent a reasonable entry point.
