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The selloff is about more than weak sentiment. Revenue growth is slowing, content and live-programming costs are rising, and the stock trades at a premium in a crowded streaming market. Together, these suggest investors should stay away from the stock in the near term, even though its long-term franchise remains intact.
NFLX’s YTD Price Performance
Image Source: Zacks Investment Research
Slowing Revenue Growth Clouds NFLX's Near-Term Outlook
Netflix's growth engine is slowing. Second-quarter 2026 revenues rose 13.4% year over year to $12.56 billion. The growth rate was down from 16.2% growth in the first quarter and 17.6% in the fourth quarter of 2025. The slowdown was most visible in UCAN, the company's largest region, where revenue growth fell to 10% from 14% in the previous quarter, reflecting only a partial-quarter impact of the recent price increase. EMEA growth also moderated to 14% from 17%. For the third quarter, Netflix expects revenues of $12.86 billion, implying growth of 11.7%, the slowest pace in recent quarters.
Engagement trends offer limited comfort. View hours grew just 2% year over year in the first half of 2026 to more than 97 billion hours. Netflix will also publish its What We Watched report only once a year from 2027, which reduces visibility into engagement. Membership growth and pricing remain the main revenue drivers, but repeated price hikes could test consumer tolerance. The company has also begun re-testing free trials for non-rejoining new members in several markets, a sign that winning new members may require more effort.
Rising Content Costs Pressure Margins and Cash Flow
Netflix's push into live programming is raising costs. The company expects live programming to account for just over 5% of 2026 content spend but only about 1% of view hours. Content amortization is projected to rise roughly 10% in 2026, with cash content spend at about 1.1 times amortization. Second-quarter operating margin contracted to 33.4% from 34.1% in the year-ago quarter. Capital expenditure jumped to $414.8 million in the first half of 2026 from $284.2 million a year ago. Free cash flow declined to $1.5 billion from $2.3 billion, partly due to higher cash tax payments linked to the Warner Bros. termination fee.
On the positive side, Netflix narrowed its 2026 revenue forecast to $51-$51.4 billion, indicating 13-14% growth. It continues to target an operating margin of 31.5% compared with 29.5% in 2025. For the third quarter, operating margin is projected at 33.2%, with diluted earnings of 82 cents per share. Advertising revenues are expected to roughly double to about $3 billion in 2026, while free cash flow is projected at approximately $12.5 billion.
The Zacks Consensus Estimate for NFLX's 2026 earnings is pegged at $3.59 per share, which has remained unchanged over the past 30 days. This indicates a 41.9% increase from the previous year. However, gross debt of $14.4 billion warrants monitoring, including $1 billion maturing later this year that Netflix plans to refinance.
Netflix's content slate for the rest of 2026 and 2027 remains robust. In late September, the company announced that it will become the new home of WWE in Japan. Korean mystery-horror series Dead-End Job premieres on Oct. 30. Italian series ChiaroScuro and Taiwanese medical drama Miracles of the ER debut on Nov. 11 and Nov. 12, respectively. Netflix also expanded the cast of its live-action Solo Leveling series and confirmed second seasons of Wave Makers and Lock Upp: Sach Ya Sazaa. Live events remain a key draw. These include NFL games on Thanksgiving Eve and Christmas, a final-week game in early 2027, the Tyson Fury vs. Anthony Joshua fight and the Women's World Cup. Yet these investments add to cost pressure and may take time to drive faster growth.
Premium Valuation and Stiff Competition Warrant Caution
Netflix's valuation remains elevated, with the stock trading at a forward 12-month price/sales ratio of 5.13X versus the industry's 3.52X. NFLX carries a Value Score of D. This premium leaves little room for error amid slowing growth, making the stock unattractive at current levels.
Competition is also intensifying. Disney (DIS - Free Report) is bundling its streaming, Hulu and ESPN offerings to retain subscribers. Disney's vast franchise library and theme-park ecosystem also strengthen Disney's pricing power and brand loyalty. Amazon (AMZN - Free Report) offers Prime Video as part of its broader Prime membership, with Amazon expanding its ad-supported reach and Amazon investing heavily in live sports rights. Apple (AAPL - Free Report) continues to build its streaming service through prestige originals. Apple leverages its device ecosystem and Apple's deep balance sheet to fund premium content and sports. These deep-pocketed rivals compete aggressively for viewers, talent and advertising dollars, which limits Netflix's pricing flexibility and steadily pressures its content costs over time.
NFLX’s Valuation
Image Source: Zacks Investment Research
Conclusion
Netflix's healthy margins, fast-growing advertising business and strong content pipeline support its long-term prospects. However, decelerating revenue growth, rising live and content costs, and a premium valuation amid stiff competition limit near-term upside. Until growth reaccelerates and cost pressures ease, investors should stay away from this streaming giant for now. NFLX currently carries a Zacks Rank #4 (Sell).
View the Zacks #1 Rank List
Image: Bigstock
Netflix Stock Plunges 26.8% Year to Date: 3 Key Reasons to Stay Away
Key Takeaways
Netflix (NFLX - Free Report) shares have plunged 26.8% year to date, underperforming the Zacks Broadcast Radio and Television industry’s decline of 9.3% and the Zacks Consumer Discretionary sector’s return of 25.8%.
The selloff is about more than weak sentiment. Revenue growth is slowing, content and live-programming costs are rising, and the stock trades at a premium in a crowded streaming market. Together, these suggest investors should stay away from the stock in the near term, even though its long-term franchise remains intact.
NFLX’s YTD Price Performance
Image Source: Zacks Investment Research
Slowing Revenue Growth Clouds NFLX's Near-Term Outlook
Netflix's growth engine is slowing. Second-quarter 2026 revenues rose 13.4% year over year to $12.56 billion. The growth rate was down from 16.2% growth in the first quarter and 17.6% in the fourth quarter of 2025. The slowdown was most visible in UCAN, the company's largest region, where revenue growth fell to 10% from 14% in the previous quarter, reflecting only a partial-quarter impact of the recent price increase. EMEA growth also moderated to 14% from 17%. For the third quarter, Netflix expects revenues of $12.86 billion, implying growth of 11.7%, the slowest pace in recent quarters.
Engagement trends offer limited comfort. View hours grew just 2% year over year in the first half of 2026 to more than 97 billion hours. Netflix will also publish its What We Watched report only once a year from 2027, which reduces visibility into engagement. Membership growth and pricing remain the main revenue drivers, but repeated price hikes could test consumer tolerance. The company has also begun re-testing free trials for non-rejoining new members in several markets, a sign that winning new members may require more effort.
Rising Content Costs Pressure Margins and Cash Flow
Netflix's push into live programming is raising costs. The company expects live programming to account for just over 5% of 2026 content spend but only about 1% of view hours. Content amortization is projected to rise roughly 10% in 2026, with cash content spend at about 1.1 times amortization. Second-quarter operating margin contracted to 33.4% from 34.1% in the year-ago quarter. Capital expenditure jumped to $414.8 million in the first half of 2026 from $284.2 million a year ago. Free cash flow declined to $1.5 billion from $2.3 billion, partly due to higher cash tax payments linked to the Warner Bros. termination fee.
On the positive side, Netflix narrowed its 2026 revenue forecast to $51-$51.4 billion, indicating 13-14% growth. It continues to target an operating margin of 31.5% compared with 29.5% in 2025. For the third quarter, operating margin is projected at 33.2%, with diluted earnings of 82 cents per share. Advertising revenues are expected to roughly double to about $3 billion in 2026, while free cash flow is projected at approximately $12.5 billion.
The Zacks Consensus Estimate for NFLX's 2026 earnings is pegged at $3.59 per share, which has remained unchanged over the past 30 days. This indicates a 41.9% increase from the previous year. However, gross debt of $14.4 billion warrants monitoring, including $1 billion maturing later this year that Netflix plans to refinance.
Netflix, Inc. Price and Consensus
Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote
Content Pipeline Strong, But Costly
Netflix's content slate for the rest of 2026 and 2027 remains robust. In late September, the company announced that it will become the new home of WWE in Japan. Korean mystery-horror series Dead-End Job premieres on Oct. 30. Italian series ChiaroScuro and Taiwanese medical drama Miracles of the ER debut on Nov. 11 and Nov. 12, respectively. Netflix also expanded the cast of its live-action Solo Leveling series and confirmed second seasons of Wave Makers and Lock Upp: Sach Ya Sazaa. Live events remain a key draw. These include NFL games on Thanksgiving Eve and Christmas, a final-week game in early 2027, the Tyson Fury vs. Anthony Joshua fight and the Women's World Cup. Yet these investments add to cost pressure and may take time to drive faster growth.
Premium Valuation and Stiff Competition Warrant Caution
Netflix's valuation remains elevated, with the stock trading at a forward 12-month price/sales ratio of 5.13X versus the industry's 3.52X. NFLX carries a Value Score of D. This premium leaves little room for error amid slowing growth, making the stock unattractive at current levels.
Competition is also intensifying. Disney (DIS - Free Report) is bundling its streaming, Hulu and ESPN offerings to retain subscribers. Disney's vast franchise library and theme-park ecosystem also strengthen Disney's pricing power and brand loyalty. Amazon (AMZN - Free Report) offers Prime Video as part of its broader Prime membership, with Amazon expanding its ad-supported reach and Amazon investing heavily in live sports rights. Apple (AAPL - Free Report) continues to build its streaming service through prestige originals. Apple leverages its device ecosystem and Apple's deep balance sheet to fund premium content and sports. These deep-pocketed rivals compete aggressively for viewers, talent and advertising dollars, which limits Netflix's pricing flexibility and steadily pressures its content costs over time.
NFLX’s Valuation
Image Source: Zacks Investment Research
Conclusion
Netflix's healthy margins, fast-growing advertising business and strong content pipeline support its long-term prospects. However, decelerating revenue growth, rising live and content costs, and a premium valuation amid stiff competition limit near-term upside. Until growth reaccelerates and cost pressures ease, investors should stay away from this streaming giant for now. NFLX currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.