Net profit up 26%, but stock price nearly halved: NFLX valuation paradox

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Net profit up 26%, but stock price nearly halved: NFLX valuation paradox

Friday, July 17, 2026

A company with a 26% net profit growth and 38% free cash flow growth for the year saw its stock price evaporate 7.26% in a single trading day, closing at $68.95, a 52-week low—this is the NFLX on July 17, 2026.

The Q2 earnings report released after the previous day's market closed showed both revenue and earnings per share meeting targets or slightly exceeding expectations, but the market was reluctantly unconvinced. Trading volume expanded to 3.4 times the daily average over the past three months, and a top financial influencer on X repeatedly retweeted the phrase "$NFLX has fallen about 50% from its peak."

So here's the question

How could a "better-than-expected" financial report cause a former growth star to be slashed in half? The answer isn't in the profits that have already happened, but in the company's cautious wording about the future.

Latest price $68.95 ▼ -7.26%

Total market capitalization $290.3 billion ▼ 52-week low

P/E ratio (TTM). 21.68 times ▼ Significant discounts

Is the world's largest "content flywheel" still unable to turn?

The NFLX's business is straightforward: it charges a monthly subscription fee to over 250 million paying users in over 190 countries worldwide, streaming its own series, movies, documentaries, and games.

Its moat is not a single blockbuster but a self-reinforcing flywheel—the more users, the higher the return per unit of content; The higher the return, the more willing to spend money on original content; The stronger the originality, the more users it attracts. FY2025's full-year revenue is $45.18 billion, supported by over $17 billion in annual content investment.

Even harder to replicate is that it is embedded in almost all distribution channels for TVs, consoles, and mobile systems, plus a recommendation algorithm trained on the behavior of 250 million users. Competitors want to chase, but what they lack is not money, but time.

But if this flywheel is so powerful, why is the market offering such a harsh discount today?

A 21x P/E ratio—is it cheap, or is there a reason why it's cheap?

Let's look at the contrast first

NFLX's current P/E ratio is about 21.68 times (rolling 12-month basis), which is not expensive for a company with a net margin over 24% and an operating margin of 33.4%, even lower than many mature tech stocks.

The fundamentals supporting it are indeed solid. FY2025 revenue was $45.18 billion, up 15.8% year-over-year; net profit was $10.98 billion, up 26%; free cash flow was $10.15 billion, up 38% year-over-year—all revenue, profit, and cash flow saw double-digit expansion.

But the quarterly pace of cash flow hides risks. Q2 quarterly free cash flow sharply declined quarter-on-quarter, mainly due to nearly $6 billion spent on stock buybacks within half a year, rather than deteriorating operations. Operating cash flow itself remains robust.

So how should we view this "cheap"? When a stock's price-to-earnings ratio drops from 200 times during the pandemic to just over 20, what you should ask is not "Is this a good opportunity to buy the dip?" but "Is the market pricing in growth peaking in advance?" This is precisely the core of the divergence between bulls and bears.

The shift from growth stocks to "value growth stocks."

The NFLX has clearly entered its mature phase. Revenue growth has dropped from over 30% during the pandemic to the current 13% to 17% range, with Q2 up 13.4% year-on-year, reflecting that user penetration is approaching saturation.

Its story has shifted from "land expansion" to "efficiency and monetization"—operating profit margin rose from about 27% in FY2024 to nearly 30% in FY2025, and further to 33.4% in Q2. The company no longer relies on boosting user numbers to please the market, but instead squeezes more profit from each user.

However, the market does not seem to have fully accepted this new identity yet. The stock price has fallen below the 50-day moving average of $80.94 and the 200-day moving average of $94, with the current price about 26.6% below the 200-day moving average. The technical side expressed it bluntly: investors are still repricing "how much more is it worth at maturity."

With the five giants battling, how high is Netflix's wall?

Each opponent had a significant background. Amazon Prime Video integrates videos into the Prime membership ecosystem as gifts, sharing costs through a $139 annual fee; Disney+ holds the top IP portfolio from Marvel, Star Wars, and Pixar; Warner's HBO Max holds its ground in high-end series and sports rights; Apple TV+ relies on 1.6 billion Apple devices for cross-promotion, but its content library is the thinnest.

NFLX's relative advantage lies in the word "scale": over 25,000 hours of content library, coverage in more than 75 languages, a capacity to produce hundreds of new shows annually, and undeniable brand awareness. Others treat video as a side dish to the ecosystem, but it treats video as the main dish.

But wall height does not equal wall thickness. The brand layer is actually quite thin—the cost of users switching platforms is mainly due to operational friction, not loyalty. Once competition intensifies and content costs rise, the real winner is who can maintain user time.

The ceiling is still high, but the slope of the climb is slowing

The global streaming video market currently stands at about $300 billion and is expected to grow to $450–500 billion by 2028, with a compound annual growth rate of 14% to 17%. The NFLX holds the leading share with approximately $45 billion in revenue.

Based on the serviceable market estimate, NFLX's revenue ceiling may be between $60 billion and $70 billion, corresponding to the previous $45.18 billion, with room for penetration improvement. Assuming global streaming penetration continues to climb and ARPU remains stable, user growth will remain the main driver.

The risk lies in the slope

Short video user time spent dividing users, low willingness to pay in emerging markets, and economic downturns leading to subscription downgrades may all make this growth curve flatter than expected. A high ceiling doesn't mean you can climb fast.

The list of contrarians: why it's worth a look now

At the most pessimistic moments of market sentiment, the logic of bulls is often hidden in overlooked numbers:

▲ Bull Case

The bear's rhetorical question: Is being cheap really the price it deserves?

A lot of decline doesn't mean a good drop. Bears are worried about several structural issues stacked into real value traps:

▼ Bear Case

What to watch next: Three things determine the next step

In the short term, the NFLX's stock price will be dominated by these key nodes—whoever pays first will have the upper hand:

•	Q3 2026 Earnings Report (Expected October): Whether free cash flow can rebound to above $3 billion in a single quarter is key to confidence rebuilding and has a strong impact
•	FY2026 full-year guidance update (expected in October): Whether the narrowed range will be revised downward again directly determines the nature of the "growth peak" narrative, with a relatively high impact
•	Ad subscription program penetration rate (second half): Accelerated user growth in low-priced ad segments can provide new drivers for ARPU, with moderate impact
•	The actual impact of generative AI on the original library (to become clearer in 2027): long-term variable, no evidence of disruption yet, moderate impact

Every "death" is exaggerated, every "rebirth" takes time

The NFLX's stock price history is a history of repeated "death sentences" and repeated turnarounds. During the pandemic dividend period from 2020 to 2021, it was regarded as a beneficiary stock and soared, with its price-to-earnings ratio once exceeding 200 times.

Then in 2022, as dividends faded and Disney+ entered the market, the stock price nearly halved again and again, with the first quarterly user decline sparking panic over peak growth. However, it later regained its high position in 2023 and 2024 thanks to password sharing reforms and ad subscription programs.

Now, this drop in July 2026 has pushed the stock price back to levels from two years ago. Historical patterns remind us of two things: after every crash, it regains momentum through business adjustments; But every "rebirth" requires several consecutive quarters of hard data to prove it, not relying on emotions. This time, the key point of verification is Q3.

⚠️ Risk Notice • The full-year revenue guidance has narrowed, with the market interpreting this as slowing growth momentum • Q2 Free cash flow fell sharply quarter-on-quarter, with buybacks squeezing reinvestment space • Revenue growth has declined, and valuation centers may continue to decline • Generative AI will erode the barrier to high-quality original content in the medium to long term • After the earnings reports, many institutions collectively lowered their target prices, weakening selling sentiment

🟡 Neutral The earnings met targets but the guidance disappointed; some negative factors have been realized, and the transformation will be proven positive in Q3.

💬 Discussion Is it a misplaced gold pit, or a value trap with peaked growth? For current real-time buy and sell positions and signals, post NFLX to the official account for updates.

Data source

•	Source: NextPick real-time snapshot + Netflix Q2 2026 earnings report and SEC 8-K announcement + summary of analyst ratings from mainstream financial media (CNBC, Variety, etc.).