Netflix (NFLX +0.26%) shareholders have had plenty of reasons to consider selling. Shares of the company are down by nearly 43% in the past year. Netflix's revenue growth is decelerating, engagement growth based on view hours remains modest, and Alphabet's YouTube reached a record 14.2% share of U.S. TV viewing in July 2026.
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Despite these challenges, if I owned Netflix stock today, I would not sell a single share. Netflix's share price has declined roughly 25% so far in 2026 (as of Oct. 9), but management still expects operating income to grow more than 20% this year. The company's forward price-to-earnings (PE) multiple has also contracted by nearly 33% from about 30.5 at the end of 2025 to roughly 20.3.
Netflix's profits have not collapsed. Instead, investors are simply paying much less for each dollar of the company's expected future earnings.
Netflix's engagement problem is not yet an earnings problem
Netflix's worldwide viewing hours increased by only about 2% in the first half of 2026. Despite this, the company's revenue rose roughly 15% year-over-year to $24.8 billion. Revenue is currently growing faster than engagement, driven primarily by membership growth, pricing, and advertising.
Netflix has largely proved the demand for its ad-supported tier, with more than 60% of new subscribers in its ad markets choosing the plan. But the bigger unanswered question is monetization.
In Netflix's second-quarter earnings call, co-CEO Greg Peters said ad-tier average revenue per membership is still lower than that for the company's standard plan without ads. But the gap is narrowing. According to Visible Alpha, Netflix generated about $618 million in advertising revenue in the second quarter, up nearly 79.8% year-over-year. Yet, the revenue was 7.2% below consensus expectations. S&P Global noted that monetization of the ad-supported tier has progressed more slowly than anticipated.
I will become more concerned if weaker engagement starts driving softer pricing, slower ad monetization, higher churn, and weaker margins all at once. Currently, though, Netflix's financial results do not show that broad deterioration.
NASDAQ: NFLX
Key Data Points
Content economics also appear to have improved. Content amortization (portion of Netflix's content costs recognized as an expense in a given period) fell from nearly 39.2% of revenue in 2024 to about 34.4% in the first half of 2026. Hence, Netflix is generating more revenue for every dollar of content amortization.
Improving content efficiency is one of the key factors supporting profitability. The company's operating margin improved from 26.7% in 2024 to 29.5% in 2025. Management expects the operating margin to be 31.5% in 2026.
Netflix's 2027 earnings growth looks deceptively weak
Wall Street currently expects Netflix to earn about $3.58 per share in 2026 and $3.80 per share in 2027, implying EPS growth of just over 6%.
But 2026 is an unusually high base for comparison. Netflix received a $2.8 billion termination fee after its Warner Bros. Discovery transaction was terminated. The company recorded the payment under interest and other income, below operating income. Netflix reported first-quarter diluted EPS of $1.23, well above its prior forecast of $0.76. The company said the upside came from stronger-than-expected operating income and the termination fee.
Using Netflix's 19% first-quarter effective tax rate and 4.29 billion diluted share count as a rough adjustment, I estimate the termination payment contributed about $0.53 per share after tax. Removing the one-time benefit from the current 2026 consensus estimate of $3.58 produces an adjusted EPS of roughly $3.05 per share. Against that figure, $3.80 of 2027 EPS would imply year-over-year growth closer to 24.6%, not 6%. Although Netflix does not report this adjusted EPS figure, it suggests that Netflix's underlying 2027 EPS growth could be much stronger than the headline consensus comparison implies.
Share repurchases could provide another boost to per-share earnings growth. Netflix spent $4.7 billion repurchasing 52.9 million shares in the second quarter. The company still had $27.1 billion of repurchase capacity remaining at the end of the second quarter.
Management has reiterated that returning excess cash through buybacks remains part of its capital allocation strategy. At today's lower share price, future repurchases could retire more shares for every dollar spent, potentially supporting faster per-share earnings growth.
Netflix's valuation looks more reasonable, but upside isn't guaranteed
Netflix stock was trading at roughly 18.5 times Wall Street's current 2027 EPS estimate of $3.8 (as of Oct.9, 2026). While the valuation appears reasonable, Netflix is not obviously cheap.
The company expects about $12.5 billion of free cash flow in 2026. However, management raised the forecast from roughly $11 billion primarily due to after-tax benefit from the Warner Bros.-related termination payment. I therefore view the earlier $11 billion forecast as a better starting point for assessing recurring cash generation.
At Netflix's roughly $293 billion market capitalization, the company is trading at a price-to-free-cash-flow multiple of about 26.6, compared with roughly 23.4 using the headline $12.5 billion figure. Hence, while Netflix's lower earnings multiple may look attractive, its recurring cash flow valuation still leaves limited room for execution mistakes.
So, Netflix may not soar in 2027. Meaningful upside likely requires either earnings above current expectations or a significant expansion in the valuation multiple.
Analysts expect about $57 billion of 2027 revenue, up roughly 11% from the midpoint of Netflix's $51 billion to $51.4 billion 2026 guidance. If Netflix can combine higher-than-expected revenue growth with a stable or modestly higher operating margin and continued share repurchases, EPS could grow faster than current expectations.
Here's what would make me sell
However, my thesis has a clear breaking point. I would become much more cautious if revenue growth slipped into the high single digits while the company's operating margins moved toward 30% or below in 2027. I would also reconsider selling if content amortization began consistently growing faster than revenue. But for now, I see slower growth, not deteriorating economics.
