It would be extremely difficult to find anything wrong with Netflix's (NFLX 3.36%) financial performance in 2025. Its revenue surged 16% year over year to $45 billion as subscribers crossed 325 million globally. Even more, that growth was on top of 16% top-line growth in 2024.
Further, the makeup of Netflix's growth is impressive, too. In addition to pricing and subscriber growth contributing to its paid membership revenue, its nascent advertising business saw revenue soar, accounting for about 3% of total revenue in 2025. Further, Netflix achieved all this growth while significantly expanding its operating margin.
Yet even with this impressive business performance, the stock is down 10% since the beginning of 2025 and about 40% from a high achieved just last summer.
With shares now below $80 even as the business seems to be firing on all cylinders, is now a good time to buy shares of Netflix?
Image source: Getty Images.
Understanding Netflix stock's valuation
Reflecting just how much excitement was already priced into the stock last summer, shares still look a bit pricey -- even after their recent pullback. Following the streaming service's year-to-date decline of about 15%, shares now have a price-to-earnings ratio of about 32 -- a valuation that bakes in double-digit revenue and earnings-per-share growth for years to come.
Though it's worth noting that a much better valuation metric for assessing Netflix stock is arguably its forward price-to-earnings ratio, which accounts for analysts' consensus earnings-per-share forecast for the streaming giant over the next 12 months. This is a good lens for Netflix stock, not only because of the company's rapid business growth but also because management expects its operating margin to continue expanding rapidly in 2026 -- a factor that, when combined with Netflix's expected double-digit revenue growth, should lead to outsize earnings growth. So, Netflix's forward price-to-earnings multiple helps investors view the stock's current price as a multiple of a consensus forecast of the company's meaningfully elevated earnings a year from now.
So, what's Netflix's forward price-to-earnings multiple with shares trading at about $80? About 26 -- a much more digestible valuation level for a company that grew revenue 16% last year while expanding its operating margin from 26.7% in 2024 to 29.5% in 2025.
Looking ahead, Netflix forecasts more robust growth and operating margin expansion. Specifically, management said it expects revenue to rise 12% to 14% year over year in 2026. Additionally, the company expects further operating leverage, guiding for its operating margin to expand from 29.5% in 2025 to 31.5% in 2026.
Of course, investors should keep in mind that Netflix takes a different approach to its guidance than most companies, providing its "actual internal forecast" with an aim for accuracy rather than a conservative forecast. This means that, from time to time, Netflix can sometimes report growth below its outlook.
Still, the company's operating leverage momentum, combined with its double-digit growth and management's upbeat forecast, helps explain why the stock continues to trade at its premium valuation.
NASDAQ: NFLX
Key Data Points
Competition remains intense
Even with Netflix's financial momentum factored in, I don't believe the shares are a clear buy today. This is because I don't believe the stock's current valuation provides enough margin of safety for scenarios in which competition potentially becomes more of a threat.
Even Netflix management has a lot to say about its competitive environment, calling it "intensely competitive" in its most recent quarterly update. Management reminded investors that the company competes not just against other streaming services but "all activities people engage with during their leisure time," including social media, video games, and many more categories. Further, "TV consumption patterns are constantly evolving, and competitive lines are increasingly blurring," management added. The company called out Alphabet's YouTube's move in recent years to lean further into TV and live sports. It even drew attention to Amazon's "vast library of series and films..." And I've personally recently highlighted Apple's streaming service as a quietly growing competitive threat to Netflix.
Overall, I think Netflix stock is getting closer to a level that effectively prices in the risks the company faces, but I personally don't think it's there yet.
