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Netflix (NFLX) just released its third-quarter earnings report, and the market’s reaction was negative. NFLX stock is down more than 9% in intraday trading after results came in below expectations. Netflix continued to grow its paid memberships. Moreover, it benefited from higher subscription prices and expanding ad-supported plans. These efforts have been key drivers of revenue growth as the streaming platform seeks to diversify its income streams amid intensifying competition. However, Netflix posted earnings of $5.87 per share for the quarter, missing both analysts’ forecasts of $6.89 and its internal projection of $6.87. The shortfall stemmed largely from expenses related to a dispute with Brazilian tax authorities over non-income tax assessments. These costs dragged on the company’s operating margin and ultimately dented its bottom line. Notably, Netflix doesn’t expect this dispute to have a material impact on its future financials. So, is the post-earnings drop in NFLX stock a buying opportunity? Netflix’s Underlying Fundamentals Remain Solid Netflix’s earnings may have fallen short of Wall Street’s expectations in its third quarter, but the company’s core business remains strong. It continues to expand its global membership base, with advertising revenue accelerating as its ad-supported tier gains traction. At the same time, Netflix’s global content strategy, built on a rich mix of series, films, and games, is paying off, driving engagement and subscriber retention. Viewership numbers highlight this strength. Subscribers collectively streamed more than 95 billion hours of content during the first half of the year. Moreover, engagement remained strong in the third quarter as new seasons of popular shows and fresh releases captured audiences’ attention worldwide. Looking ahead, Netflix’s lineup for the fourth quarter looks promising. With a solid slate of anticipated titles, the company is well-positioned to keep existing members engaged while enticing new subscribers to join. This momentum should help sustain Netflix’s growth trajectory heading into 2026. In addition to its core programming, Netflix is venturing deeper into live events, a strategic move aimed at expanding engagement opportunities. The platform will stream high-profile attractions such as NFL Christmas Day games and the Jake Paul vs. Tank Davis boxing match. Such significant events attract mass audiences, supporting its ad revenue. Netflix is monetizing its subscriber base well. The company’s recent price increase has driven its top line, and most importantly, Netflix continued to attract new customers and retain existing ones. This positive response gives Netflix more financial breathing room to channel additional investments into high-quality content and ad technology, both of which are critical to sustaining its competitive edge and supporting long-term growth. At the same time, Netflix’s advertising business is now a key catalyst for future growth. The company expects ad revenue to double in 2025. The full rollout of the Netflix Ads Suite across all its advertising markets will likely drive its ad revenue. The ad suite will strengthen Netflix’s ad-targeting capabilities, further accelerating ad-driven revenue growth. Netflix Stock Is Not Cheap Netflix’s solid content, ability to acquire and retain subscribers, and a growing ad business warrant its premium valuation against peers. However, Netflix stock is currently trading at a forward price-earnings (P/E) ratio of roughly 48 times, implying that much of the market’s optimism about the company’s future growth is already baked into the stock. Analysts project Netflix’s earnings to rise by 23.5% in 2026. The earnings growth projection remains strong, but it is not high enough to justify the valuation. Is NFLX Stock a Buy Now? Despite the Q3 earnings miss, its quarterly performance shows that the company’s core business is performing well, with strong subscriber engagement, a growing ad revenue stream, and a solid content slate. These fundamentals position Netflix for continued growth. However, its current valuation already reflects substantial optimism about that growth, suggesting limited upside in the near term. Wall Street maintains a “Moderate Buy” consensus rating on Netflix stock.
