The market wasn't impressed by Netflix (NFLX 0.43%) after the company kicked off earnings season for streaming services stocks last week. The overall market may have rallied to fresh highs, but Netflix stock plummeted 12% as it sank lower in each of the week's last three trading days.
Like KPop Demon Hunters -- the animated feature with a catchy soundtrack that remains one of the platform's most-viewed movies over the past four months -- Netflix has some demons to vanquish. And like the main protagonist, Netflix is conflicted in the fight.
Below, I'll take a closer look at last week's report and what seems like an unfair market response. If I'm right, the recovery this week and beyond is going to be golden.
NASDAQ: NFLX
Key Data Points
The big picture is a moving picture
Last week was challenging for the pioneer and market leader for premium streaming services as it posted disappointing third-quarter results after Tuesday's market close. Revenue rose 17.2% to $11.51 billion, a smidgeon shy of the 17.3% leap that it was forecasting three months earlier.
The bottom line was a bigger miss, as net income rose 9% to $5.87 a share for the three months ending in September. The company was modeling its per-share earnings to jump 27% for the period.
Zooming in, the headline earnings miss is jarring but not a long-term concern. Netflix points out that one-time hits related to a tax dispute in Brazil were behind the shortfall on the bottom line.
If not for those expenses, the company's margin and results would've gone roughly according to plan. The top-line results are naturally still pretty good. This is the first time in more than four years that Netflix revenue clocked in with growth north of 17%.
Now let's zoom out. I'm not just talking about the stock itself, which continues to do just fine for most Netflix investors who didn't initiate a position last week. Even after its post-earnings pullback, Netflix stock is beating the market with a 46% gain over the past year and has nearly quadrupled over the past three years. I won't even brag about my own returns as a Netflix investor, since I purchased shares when it was a broken initial public offering (IPO) in 2002.
Zoom out just enough to look ahead -- something that every investor should do -- and the bullish thesis still holds up. Netflix guidance is solid. It sees another quarter of roughly 17% year-over-year growth in revenue, and net income should soar 28% for the seasonally sleepy fourth quarter.
Image source: Getty Images.
Smile for the camera
I want to start with a negative trend that has emerged over the past five quarterly reports. I'll go over the market's reaction to the stock the day after it offered its results after the previous day's market close.
- Oct. 22, 2025: Down 10%
- July 18, 2025: Down 5%
- April 21, 2025: Up 2%
- Jan. 22, 2025: Up 10%
- Oct. 18, 2024: Up 11%
This isn't just the second time that the the stock behaved badly on earnings day. The market's reaction has deteriorated with every passing quarter over the past year. It's no longer just an anomaly, something that I was hoping was the case with the prior-quarter's dip.
It's not good, but I still see last week's pullback as a buying opportunity. The platform is too sticky and scalable to fail at this point and has the largest premium audience paying rates that go higher on a regular basis. Its closest rival just raised prices last week, but Netflix hasn't bumped its subscriptions higher since January. It should happen soon, and that will send Wall Street pro targets higher.
It's also been a decade since Netflix declared a stock split, but that could change the next time the shares start to rally at current levels. Stock splits are zero-sum games but have a funny way of showing off confidence and attracting retail investors with the misconception that a stock with a larger price is overvalued.
About that, Netflix is conventionally overvalued. Trading for 34 times forward earnings -- half of its current revenue growth and still greater than its better bottom-line increases -- isn't going to woo value investors. However, a lot of folks who have missed Netflix as a wealth-altering growth stock have overlooked its dominant position and how that will make it hold up better than other platforms in a recession or a media stock services shakeout. Netflix can do a lot with its almost $9 billion in free cash flow over the trailing 12 months.
Finally, give KPop Demon Hunters a chance. It's better than you probably think -- and the same also applies to Netflix stock after last week's sell-off.
