Netflix Stock's Recent Pullback Sharpens Valuation Debate—Is This Dip Worth Buying?

Netflix’s stock price has stumbled roughly 10% since the start of 2025, declining as much as 40% from last summer’s highs. Yet this price weakness stands in stark contrast to what the streaming giant accomplished operationally. The company’s 2025 results were genuinely impressive: revenue climbed 16% year-over-year to $45 billion while the global subscriber base surpassed 325 million. What makes this particularly noteworthy is that Netflix achieved this growth rate on top of already-solid 16% expansion in 2024. Adding to the story, the company expanded its operating margin significantly while simultaneously growing its nascent advertising business, which now represents roughly 3% of total revenue.

This gap between strong business execution and stock price weakness raises an important question: does the current valuation, with shares trading below $80, represent an attractive entry point for investors—or is the market still pricing in too much optimism?

Strong Financial Execution Masks Stock Weakness

The breadth of Netflix’s 2025 performance was genuinely impressive across multiple dimensions. Revenue growth of 16% is substantial for a company of Netflix’s scale. More importantly, this top-line expansion came alongside meaningful margin improvement. Netflix expanded its operating margin from 26.7% in 2024 to 29.5% in 2025—evidence that the company is converting revenue growth into profit growth at an accelerating pace.

Management’s forward guidance reinforces this momentum. For 2026, the company expects revenue to grow 12% to 14% year-over-year, with operating margin continuing to expand toward 31.5%. This combination of sustained double-digit growth plus operating leverage is precisely what investors hope to see from mature technology platforms. Netflix management follows a practice of providing what it calls an “actual internal forecast” rather than conservative guidance, lending credibility to these projections.

The diversification of revenue streams also deserves attention. Beyond pricing increases and subscriber growth driving paid membership revenue, the advertising business is beginning to contribute meaningfully. This mix represents a maturing revenue model that reduces dependence on any single growth lever.

Forward Valuation Metrics Tell a More Nuanced Story

The traditional price-to-earnings ratio presents one valuation perspective: at around 32x, it suggests the market is pricing in substantial growth for years ahead. Yet this backward-looking metric may not capture Netflix’s situation optimally.

A more instructive lens is the forward price-to-earnings multiple, which reflects analyst consensus earnings forecasts for the coming 12 months. For Netflix, this metric currently sits around 26x at the current $80 price level. This forward multiple becomes particularly relevant given management’s expectations for margin expansion in 2026. When combined with double-digit revenue growth, the earnings-per-share growth rate should exceed top-line growth—a dynamic that forward P/E more accurately reflects than trailing ratios.

At approximately 26x forward earnings, Netflix trades at a premium valuation. However, for a company that grew revenue 16% while expanding margins by 280 basis points in 2025—and expects to push margins toward 31.5% in 2026—this multiple doesn’t appear obviously excessive. The forward metric effectively prices in a company that is materially profitable a year from now, not merely a growth story.

Competitive Pressures Justify Continued Premium Pricing Concerns

Despite Netflix’s operational strength, management acknowledges that the competitive environment remains “intensely competitive.” More than just competition from other streaming platforms, Netflix faces rivals across the entire spectrum of consumer leisure activities—social media platforms, gaming services, and traditional television offerings all compete for viewer attention.

Management specifically highlighted YouTube’s expansion into television and live sports content as a meaningful competitive threat. Amazon’s extensive library of original series and films represents another formidable challenger. Apple’s streaming service, though less dominant than these competitors, represents a quietly growing threat, particularly given Apple’s capacity to bundle services and leverage its massive installed user base.

The blurring of competitive boundaries creates ongoing uncertainty. Television consumption patterns continue evolving, and distinguishing between streaming competitors and broader entertainment alternatives becomes increasingly difficult. These pressures mean that Netflix cannot assume its current market position and pricing power remain unchanged indefinitely.

The Bottom Line: Waiting for Better Risk-Reward Balance

The stock’s recent dips have narrowed the gap between business quality and valuation, but the margin of safety remains thin in my view. Netflix’s forward multiple of roughly 26x, while more reasonable than the trailing 32x, still requires management to execute its guidance and the company to maintain competitive strength without meaningful share loss to emerging competitors.

For investors seeking an entry point into Netflix, the current pullback represents a step in the right direction. However, given the company’s premium valuation—even after recent declines—and the genuine competitive threats on the horizon, waiting for an even more compelling entry point seems prudent. The dips we’ve seen year-to-date represent progress toward more attractive risk-adjusted returns, but additional weakness may be required before Netflix represents a clear value opportunity for conservative investors.