Netflix (NFLX +1.66%) has a strange problem. Its stock was recently down roughly 40% from its 2025 peak, yet the underlying business continues to grow.
In the second quarter of 2026, Netflix generated $12.6 billion in revenue, up 13% year over year. Operating income reached $4.2 billion, while operating margin remained above 33%. Those aren't the numbers of a broken business.
That creates an important question for investors: Has the sell-off finally made Netflix stock attractive? Let's explore further.
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Has Netflix's business actually deteriorated?
The business has not suffered nearly as much as the stock price suggests. Netflix remains one of the world's largest entertainment platforms, and its audience continues to spend enormous amounts of time using the service. During the first half of 2026, viewers watched more than 97 billion hours of Netflix content.
The financial picture also remains healthy. Revenue is growing at a double-digit rate, profitability remains strong, and management expects operating income to grow faster than revenue this year. That last point is particularly important. Netflix isn't simply selling more subscriptions; it's becoming more profitable as it grows, thanks to operating leverage.
And then there's advertising. Netflix's ad-supported plans now reach more than 250 million monthly active users globally. The company expects advertising revenue to reach roughly $3 billion in 2026, about double the prior-year figure.
That's still a small number compared with Netflix's overall business. But it gives the company another way to grow without relying entirely on adding subscribers. So, no, Netflix's business hasn't deteriorated anywhere close to 40%.
Why did investors turn against the stock?
For years, Netflix was valued as a high-growth company. Investors expected rapid subscriber growth, expanding international markets, and years of rising revenue. They were willing to pay a premium because they believed its best growth was still ahead.
But Netflix is no longer a young company disrupting a new industry; it's now enormous. That creates a natural challenge. Adding another 100 million customers is much harder when a company already serves hundreds of millions of people.
Recent developments have reinforced those concerns. Netflix's latest forecast came in below Wall Street's expectations. The company also plans to reduce the frequency of its viewing-hours reports beginning in 2027. Those changes raised questions about the pace of growth and engagement.
Then came Warner Bros. Discovery. Netflix pursued a deal for the other company's studio and streaming assets, but the situation turned into a bidding battle with Paramount Skydance. When the price rose beyond what Netflix considered attractive, management walked away rather than chase the deal.
I think that was the right decision. But the episode highlighted a concern that investors hadn't been focused on before: Does Netflix need to spend tens of billions of dollars to find its next phase of growth? In other words, they have concerns about whether Netflix can sustain its double-digit growth rate in the coming years.
NASDAQ: NFLX
Key Data Points
Is the sell-off finally enough?
A 40% decline doesn't automatically make a stock a bargain. A company can lose 40% of its market value and still be expensive if its future earnings prospects have fallen even further.
In the case of Netflix, the recent decline may put the stock into the bargain territory if it meets these three tests: Can the company sustain healthy revenue growth? Can it continue expanding margins? And can advertising become a much larger business?
If the answers are yes for all three, that would give investors something valuable: a mature core business with another meaningful growth opportunity developing alongside it.
What does this mean for investors?
Netflix's steep stock decline has changed the risk-reward equation. Meanwhile, the business is still growing. Advertising is expanding rapidly. And Netflix has shown discipline by refusing to chase Warner Bros. at a price it no longer considers attractive.
The market, meanwhile, has become much more skeptical. After all, the 2026 revenue growth rate is expected to moderate to between 13% and 14%, down from 16% a year earlier. I wouldn't buy Netflix simply because the price is down 40%. I'd buy it if I believed the market had become more pessimistic about the company's future than the underlying business deserves.
And for those who are convinced by that argument, buying Netflix stock could be rewarding in the long term.
