Optimism has increased around Netflix (NFLX +1.00%), particularly following a dramatic recovery from its 2022 lows. As one of the world's most recognized brands and a leading content creator, it has increased its dominance over the entertainment industry as viewed entertainment switches to streaming.
Knowing that, it may surprise investors that the stock has underperformed the S&P 500 over a one-year time frame, it lost 11% last month, and trades at a 40% discount to its 52-week high. Knowing those facts, is it poised for a comeback over the next 12 months?
Let's take a closer look.
Image source: Netflix.
The state of Netflix
Despite its stock performance, Netflix seems to be riding high as a company. With its global distribution and a massive trove of user data, it has become increasingly influential over the movie industry. Moreover, the ad platform that it was once reluctant to embrace has brought it growth.
In 2025, revenue of $45 billion rose by 16% annually and outpaced cost and expense growth. Consequently, its net income of nearly $11 billion surged by 26% over the same period.
Furthermore, winning the battle with Paramount Skydance to buy Warner Bros. Discovery is a testament to its power over the market.
Still, the cost of that deal may have soured investors on the stock. Netflix will pay $82.7 billion for Warner Bros. in an all-cash deal. However, with only around $9 billion in liquidity, Netflix will probably have to dilute its stock or take on considerable debt to execute this deal.
With that, Netflix has paused share repurchases. It also guided for revenue growth of 12% to 14% in 2026, a reduction from its 2025 growth rate. These factors likely will not reassure investors.
Nonetheless, not all of the news is negative. Even with lower revenue growth rates, Netflix expects higher subscriber levels and an approximate doubling of ad revenue in 2026.
NASDAQ: NFLX
Key Data Points
Additionally, thanks to the falling stock price, Netflix stock trades at about 32 times earnings. That is not as low as the 16 P/E ratio in mid-2022, but it is well below the average P/E ratio of 44 over the last five years.
Investors should remember that Netflix remains the leading streaming platform, and having Warner Bros. under its umbrella could cement its market position. That strength could persuade investors to take a chance on Netflix stock amid the lower valuation.
Netflix in one year
Netflix's leadership in streaming should make it a long-term winner, but investors should probably expect underperformance over the next 12 months.
Admittedly, Netflix could begin to appear dominant with the Warner Bros. content library under its umbrella.
However, the purchase is almost certain to strain Netflix's balance sheet. That forces it to suspend the share repurchases that were helping to boost the entertainment stock. Also, revenue growth is on track to slow, which could further sour investors on the stock.
Ultimately, Netflix may well be on track to become a stronger company. Nonetheless, it will likely take more than one year to recover from the hit the company will probably take to make the merger successful.
