Netflix slides 44% as growth slowdown tests investor conviction

Netflix shares fell 44% over the past year to about $69 as the streaming pioneer's revenue growth decelerated for three straight quarters.

"This is not a broken company. It's one of the best companies around with one of the best products," Jim Cramer, host of CNBC's Mad Money, said on July 20.

Netflix reported Q2 2026 revenue of $12.56 billion, up 13.4% year over year but narrowly missing the $12.58 billion consensus. Earnings per share of $0.80 beat the $0.7883 estimate. The company guided for Q3 revenue of $12.86 billion, implying growth of 11.7% — the fourth consecutive deceleration from 17.6% in Q4 2025 and 16.2% in Q1 2026.

The sell-off has pushed Netflix to 19 times forward earnings, its lowest multiple in years, while the S&P 500 gained 18% over the same period. The divergence has split Wall Street, with BMO Capital Markets setting a $135 price target implying nearly 100% upside, while prediction markets assign only 44% probability of a near-term recovery above $70.

The bull case rests on advertising. Co-CEO Greg Peters described the gap between ad-tier and standard pricing as "near-term, unrealized revenue growth," with management expecting ad revenue to roughly double to $3 billion in 2026. Netflix also completed a record $4.7 billion share buyback in the second quarter, with $27 billion remaining under authorization.

Of the 50 analysts covering Netflix, 37 rate it Buy or Strong Buy and 13 rate it Hold, with zero Sell ratings. The consensus price target of $97.91 implies 44.8% upside from the current $67.60. Bank of America's Jessica Reif Ehrlich kept a Buy rating after earnings, calling the pullback "an overreaction."

The bear case centers on content momentum and competition. Netflix has lacked a blockbuster hit on the scale of past successes, and the company's decision to reduce transparency around subscriber and viewership data has made it harder for investors to gauge engagement trends. Free cash flow fell 32.7% year over year in Q2 because of higher cash tax payments and the Warner Bros. termination fee.

The valuation reset means Netflix now trades in line with the S&P 500's multiple, a stark shift from its historical growth premium. If the company delivers the 21% to 22% annual earnings growth analysts project over the next three to five years, the current price could prove attractive. Even at 10% to 12% growth, the stock could generate solid long-term returns from current levels.

The next event to watch is the Q3 earnings report in October, where investors will see whether advertising revenue accelerates and whether subscriber trends stabilize. Until then, the stock faces a test of whether the 19 times multiple represents a floor or a value trap.

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