Netflix, a global leader in the streaming industry, has seen its stock experience a sharp 22.66% decline in the last three months, despite posting better-than-expected Q4 earnings. This article explores the causes behind the stock decline, the company’s financial performance, and the growth opportunities that could reshape its valuation.
Strong Q4 Earnings but Investor Concerns Persist
In Q4, Netflix reported revenue growth of 17.6% year-over-year, reaching $12.05 billion, while its EPS climbed by 30.2% to $0.56, beating Wall Street expectations. Additionally, operating income surged by 30.1%, and free cash flow rose 35.8% to $1.9 billion. Despite these promising figures, investor concerns remain centered around rising operating expenses and uncertainty about profit margins in the near term.
Netflix management has guided for faster cost growth in the coming year, sparking questions about how this could impact profitability. Analysts believe the sharp selloff may stem from inflated market expectations rather than any fundamental weakness in the company’s performance.
Advertising Revenue as a Key Growth Engine
One of Netflix’s most exciting growth areas is its ad-supported streaming tier, which has rapidly emerged as a significant revenue driver. In 2025, the platform generated $1.5 billion in ad revenue, a figure expected to double by 2026, reaching $3 billion. Wedbush Securities maintains that ad revenue will continue growing through 2027 and beyond, with this segment becoming an increasingly large portion of the company’s income stream.
The ad-supported tier has also contributed to broader audience accessibility, attracting price-sensitive users to the platform. Higher engagement levels, including 96 billion hours of content streamed in the second half of 2025, underscore Netflix’s dominance in global entertainment.
Valuation, Upgrades, and Analyst Expectations
Analyst sentiment towards Netflix stock remains cautiously optimistic. Phillip Securities recently upgraded the stock from “Sell” to “Accumulate,” setting a price target of $100. Similarly, Wedbush Securities issued an “Outperform” rating, with an ambitious price target of $115. The Wall Street consensus reflects a “Moderate Buy” rating, with an average price target of $115.43, suggesting an upside potential of 34%, and some estimates go as high as $150.
While Netflix trades at a higher 26.62 times forward earnings compared to industry peers, it remains below its own five-year average. Promising Q1 fiscal 2026 projections—expected EPS growth of 15.2% to $0.76—highlight continued financial momentum.
A Long-Term Perspective on Revenue Projections
For 2026, Netflix anticipates revenue to increase from $50.7 billion to $51.7 billion, translating to annual growth of 12-14%. Furthermore, analysts project earnings per share (EPS) growth of 23.72% to $3.13 for full-year 2026, with further gains anticipated in 2027.
To help maintain this growth trajectory, Netflix could lean on its market dominance, pricing power, and innovative content offerings. The platform’s competitive edge continues to attract millions of subscribers worldwide, boasting approximately 325 million paid users globally as of 2025.
Take Advantage of Streaming Industry Opportunities
If you’re interested in the ever-expanding streaming world, consider exploring Netflix’s ad-supported tier. It’s an excellent way for cost-conscious customers to gain access to award-winning content. Additionally, for enthusiasts tracking the stock market, consider resources like this highly rated stock market guide on Amazon, which provides insights into making smarter investment decisions.
