Netflix's (NFLX 1.88%) stock has tumbled more than 60% this year amid pressing concerns about its slowing growth, ongoing loss of subscribers, and intensifying competition in the streaming video market. Its plans to chase down shared passwords and launch a cheaper ad-supported tier also suggested that Netflix was starved for new subscribers.

However, shares recently rallied after the company posted a mixed second-quarter earnings report. Has the streaming video giant's stock finally bottomed out, or will it continue to slide over the next few quarters?

A couple sitting on a couch with one person holding and pointing a remote.

Image source: Getty Images.

Another quarter of decelerating growth

Netflix's revenue rose 8.6% year over year to $7.97 billion in the second quarter, but that represented another quarter of slowing growth and narrowly missed analysts' expectations by $60 million.

Its paid subscribers increased 5.5% year over year to 220.67 million, but that still represented its second sequential loss of subs. On the bright side, it lost fewer than a million subscribers, which was significantly better than its own projected loss of about 2 million.


Q2 2021

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Paid subscribers (millions)






Growth (YOY)






Revenue (billions)






Growth (YOY)






Data source: Netflix. YOY = year over year.

Brighter days could be around the corner

Netflix expects that bleeding to stop with a sequential addition of 1 million subscribers in the third quarter. It attributes that renewed interest to the return of Stranger Things, as well as the high viewership of other hit shows like The Umbrella Academy, The Lincoln Lawyer, and The Ultimatum.

According to Nielsen's ratings, Netflix gained the most viewing minutes (1.33 trillion) of any media outlet in the U.S. during the 2021-2022 TV season. Paramount Global's (PARA 0.63%) CBS ranked second with 753 billion minutes, followed by Comcast's (CMCSA -0.08%) NBC (597 billion), Disney's (DIS 0.65%) ABC (472 billion), and Fox (323 billion).

Disney+, which is often cited as Netflix's top streaming competitor, ranked sixth with 245 billion viewing minutes. Amazon and Apple ranked even lower. Therefore, the competitive threats might be overblown -- and Netflix might widen its lead with the planned launch of its ad-supported tier in early 2023.

But in the third quarter, Netflix only expects its revenue to rise 5% year over year -- and dip 2% sequentially -- to $7.84 billion as it gains a higher mix of lower-revenue overseas users amid tough currency headwinds. But on a constant currency basis, it expects its Q3 revenue to grow 12%.

But the costs are climbing

Netflix's operating margin declined both year over year and sequentially to 19.8% in the second quarter as it ramped up its production of new content. That was significantly lower than its prior forecast of 21.5%. Its free cash flow (FCF) also plunged sequentially to just $13 million.


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Operating margin






Free cash flow (millions)






EPS growth (YOY)






Data source: Netflix. YOY = year over year.

Netflix expects its operating margin to fall again to 16% in the third quarter and for its earnings per share (EPS) to drop 33% year over year.

During the conference call, CFO Spence Neumann predicted its near-term operating margins would remain under pressure as it rolls out new content to "reignite revenue growth." Barring any major currency swings, it expects to generate an operating margin of 19%-20% for the full year, which would represent a slight decline from 21% in 2021.

For the full year, analysts expect Netflix's revenue to rise 7% and for its net income to decline 11%. Next year, they expect its revenue and net income to grow 9% and 13%, respectively, as its spending gradually stabilizes.

Can we consider Netflix a value play?

We should take those estimates with a grain of salt, but Netflix's high-growth days are likely over. However, it could remain the clear leader of the premium streaming video market as rivals like Disney continue to pump billions of dollars into their unprofitable streaming ecosystems.

Netflix stock currently trades at 19 times forward earnings. That multiple seems reasonable relative to its growth rates, but it definitely isn't a screaming bargain yet -- especially if we compare it to traditional media companies like Disney, Comcast, and Paramount, which currently trade at 17, 11, and nine times forward earnings, respectively.

Therefore, Netflix isn't headed off a cliff, but it also isn't a value play. It still faces significant long-term challenges, and its stock could eventually be valued more like its traditional media peers instead of like a high-growth tech company, so I don't see it as a compelling buy right now.