Netflix stock down 40% as growth concerns test streaming valuations

Netflix shares have fallen roughly 40 percent from recent highs, closing at $78.24 on Aug. 13, despite Q2 revenue growing 13 percent to $12.6 billion.

Pershing Square's interim report said Netflix can amortize content investment across the largest streaming user base, a scale advantage that becomes more valuable as AI compute costs stay high. The fund, led by Bill Ackman, reopened its position after previously exiting at a loss.

Q2 2026 revenue of $12.6 billion marked 13 percent year-over-year growth on a reported basis and 12 percent on a foreign-exchange-neutral basis, with every operating region posting double-digit increases. Management guided 2026 operating margin to 31.5 percent, up from 29.5 percent in 2025, implying operating income growth above 20 percent for the year. Free cash flow reached $1.5 billion in the quarter, with full-year guidance of $12.5 billion. The company repurchased $4.7 billion of stock in Q2 after the board authorized an additional $25 billion buyback in April.

The 40 percent drawdown has pushed Netflix's forward P/E to roughly 20 times, down from more than 40 times at prior peaks. Consensus 2026 earnings stand at $3.59 per share, implying 41.9 percent growth from the prior year, driven by margin expansion and share repurchases.

The company narrowed 2026 revenue guidance to $51 billion to $51.4 billion, from $50.7 billion to $51.7 billion previously, implying 13 to 14 percent growth at the midpoint. The stock remains about 18 percent above its 52-week low from July 2026, with a year-to-date decline of 20.9 percent. The stock traded at $76.22 in recent sessions, roughly 24 percent below a fair value estimate of $100.51.

Netflix's content engine remains the core of its competitive position, with global original series, films, and localized programming driving subscriber acquisition across markets. The company has focused on monetizing password sharing and optimizing subscription tiers to capture more value from existing viewers. These product-level shifts support the margin trajectory outlined in management's 2026 guidance. Netflix trades on Nasdaq under the ticker NFLX.

Growth is expected to decelerate to roughly 12 percent in Q3 2026. The stock traded at $78.67 in extended hours on Aug. 13, suggesting incremental buying interest after Pershing Square's disclosure.

The decline reflects investor concern that Netflix's growth rate is normalizing after years of rapid expansion. The company's ability to maintain double-digit revenue growth while expanding margins above 30 percent will determine whether the stock re-rates higher from current levels. Investors will watch Q3 subscriber additions and the next earnings call for evidence that growth can hold near 12 percent.

This article is for informational purposes only and does not constitute investment advice.