Is NFLX Stock a Buy Before Q2 Earnings? What the 46% Decline From the High Tells Investors

There is a version of the NFLX stock story where a 46% decline from the all time high is a screaming buy signal. There is another version where NFLX stock is the market correctly identifying that the best days of Netflix's growth story are behind it. NFLX stock sitting at approximately $73 today forces investors to decide which version they believe, and the honest answer is that the evidence supports elements of both rather than cleanly validating either.

What makes the buy decision interesting at this specific price is not the 46% decline itself. Stocks can fall 46% for very good reasons and keep falling. What makes it interesting is the combination of that decline with a business that continues generating real profits at real scale, a valuation that has compressed below the market average for the first time in years, and a new revenue stream in advertising that is growing faster than the core subscription business despite representing a small fraction of total revenue

What 46% Actually Buys You That 100% Did Not

The all-time high that NFLX stock reached before the current selloff was built on a specific and temporary set of conditions. The password sharing crackdown produced a subscriber surge that the market correctly identified as one time rather than recurring. Price increases layered on top of that subscriber surge created a revenue acceleration that was always going to face a tougher comparison period once the crackdown's effects were fully absorbed.

Investors who bought NFLX stock near the all-time high were paying for the continuation of that temporary acceleration. At $73 and a 46% discount to that peak, investors are paying for something more modest and more sustainable: a business with 325 million paying subscribers, growing revenue at approximately 13% to 16% annually, generating meaningful free cash flow, and adding an advertising revenue stream that is compounding off a small base at rates the subscription business cannot match.

That is a different investment from what existed at the all time high. It is not obviously a better investment because the price is lower. It is a different investment because the growth narrative has reset from extraordinary to solid, and solid at a compressed multiple is a legitimate place to own a quality business.

The Valuation Compression That Nobody Is Talking About Enough

The forward price to earnings ratio on Netflix's estimated 2027 earnings sits at approximately 19 times. That number requires context to be useful rather than simply a data point to cite.

Netflix has historically traded at forward multiples ranging from the mid20s to above 60 times earnings during periods of peak enthusiasm. The compression to 19 times reflects the market's reassessment of Netflix as a mature streaming company rather than a hypergrowth platform. That reassessment is arguably correct. Netflix is not going to add 50 million subscribers in a single quarter again. The password-sharing crackdown was a structural unlock that cannot be repeated.

But 19 times forward earnings for a company with 325 million paying subscribers, a growing advertising business, and pricing power that it has demonstrated repeatedly over the past five years is a multiple that reflects maximum pessimism rather than a balanced assessment of what the business is worth. Netflix at 19 times 2027 earnings is cheaper than many consumer staples companies that grow revenue at 3% annually. The comparison is imperfect but it illustrates how much the valuation has compressed relative to the growth rate the business is actually delivering.

The specific opportunity embedded in that compression is multiple expansion back toward the mid-20s if today's earnings provide any evidence that the advertising trajectory is accelerating and that revenue growth can sustain double digits through 2027. Moving from 19 times to 24 times on stable earnings alone implies roughly 26% stock price appreciation without any earnings growth contributing. The combination of modest multiple expansion and continued earnings growth is what makes the 46% decline from the high look like an entry opportunity rather than a warning sign to the most bullish analysts covering the stock.

Why Reed Hastings Leaving Is Less Important Than It Sounds

The founder departure narrative that has added a layer of uncertainty to NFLX stock in recent months deserves honest treatment rather than either dismissal or amplification.

Reed Hastings built something genuinely extraordinary. The transformation from DVD by mail to streaming to global content production to advertising is one of the most successful strategic pivots in business history, and Hastings was the architect of each phase. His departure from the chairman role removes a specific type of institutional knowledge from the board that cannot be fully replaced.

But Netflix's current challenges are not chairman problems. They are growth narrative problems. The question of whether advertising can scale fast enough to replace the password sharing tailwind is not answered by who sits at the head of the boardroom table. It is answered by whether the 4,000 advertising partners that Netflix has assembled are spending more per quarter than they were in the previous quarter, and whether the 250 million monthly active users on the ad-supported tier are engaging with content at the rates those advertisers are paying for.

Ted Sarandos and Greg Peters have been running the operational business for years. Today's earnings call is not their first rodeo and the Hastings departure, while symbolically significant, is not what determines whether NFLX stock is a buy at $73.

The Advertising Business Argument That Stands on Its Own

There is a specific reason to own NFLX stock at $73 that does not depend on the Q2 headline numbers or on any particular outcome from today's earnings report. It is the advertising business trajectory and what it implies about where Netflix's revenue mix is heading over the next three to five years.

Netflix's advertising revenue is expected to reach approximately $3 billion in 2026 after more than doubling in 2025. That $3 billion sits against total revenue of approximately $51 billion for the year, meaning advertising represents roughly 6% of total revenue currently. The bull case is not about 6%. It is about where 6% goes when the compounding rates that advertising has been demonstrating continue against the slower growth of the subscription base.

If advertising revenue doubles again in 2027 to $6 billion and then continues compounding at even half the current rate, the revenue contribution from advertising becomes a meaningful accelerant to total revenue growth at exactly the moment when subscription growth is expected to moderate. A company whose fastest-growing segment is still in the early innings of its total addressable market is a company that deserves more than 19 times forward earnings, regardless of what the headline subscriber number shows in any individual quarter.

The 250 million monthly active users on the ad-supported tier with over 80% weekly engagement is the foundation of that argument. Advertisers pay for reach and engagement. Netflix has both at a scale that most advertising platforms cannot offer, wrapped in premium content that attracts the demographic advertisers are most willing to pay for. The monetization of that audience is still in its early stages relative to what the inventory could eventually support.

The Live Channels Discussion and Why It Is Both Opportunity and Risk

The Wall Street Journal report about Netflix considering adding live channels to its service generated more negative reaction than it probably deserved, and unpacking why helps investors think more clearly about what it means for NFLX stock.

The negative reaction was primarily about cost. Live channels require rights acquisitions, production infrastructure, and scheduling commitments that on-demand streaming does not, and investors who have watched Netflix's content budget grow through every phase of its history were understandably skeptical about another expansion of the content expense line.

The more optimistic reading is that live channels represent the logical extension of what Netflix has already been building. Sports rights, live comedy specials, live reality competition finales, and live events have been a consistent thread in Netflix's recent content strategy. Adding a live channels product is building on demonstrated viewer behavior rather than pivoting to a format Netflix has no experience with.

Whether live channels are ultimately net positive or net negative for NFLX stock depends on the economics of what Netflix acquires and at what price. A live channels strategy built on the sports rights, original programming, and event coverage that Netflix already produces is very different from a strategy built on competing with cable networks for linear programming rights at prices that do not generate attractive returns. Today's earnings call will reveal which version of the live channels strategy Netflix is actually considering.

The Honest Risk That Makes This Not an Obvious Buy

Acknowledging what could make buying NFLX stock at $73 wrong matters as much as mapping the bull case.

The fundamental risk is that advertising revenue does not compound at the rates that the current trajectory implies. Digital advertising markets are competitive in ways that Netflix's subscription business is not, and the same macro pressures that affect Meta's and Alphabet's advertising businesses affect Netflix's. If enterprise advertisers reduce budgets in response to economic uncertainty, Netflix's advertising ramp slows, and the revenue growth story that justifies buying at 19 times earnings weakens.

The content cost risk compounds the advertising risk. Netflix spends tens of billions of dollars annually on content to maintain the engagement rates that make its advertising inventory valuable. Any increase in content costs from live channels, sports rights expansion, or competitive bidding for premium programming compresses the margins that make the earnings multiple supportable.

And the competition risk, while overplayed by bears who have been wrong about Netflix's competitive position for a decade, is not zero. Disney Plus, Amazon Prime, and Apple TV Plus are each capable of producing content that diverts subscriber attention and increases Netflix's churn in ways that are difficult to predict from quarterly data points.

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Conclusion

NFLX stock at $73 with a 46% decline from the all time high is a legitimate buying opportunity for investors who believe the advertising business compounding argument and who can accept the binary risk of tonight's earnings moving the stock 8% in either direction.

The decline from the high did not happen because Netflix stopped working. It happened because the temporary tailwinds from password-sharing and price increases are now fully absorbed, and the market is not yet convinced that advertising is a credible successor growth driver at the pace required to sustain the double-digit revenue growth that justified higher multiples.

If tonight's earnings provide that conviction, the combination of multiple expansion from 19 times toward the mid-20s and continued earnings growth produces the kind of returns that justify buying a quality business at a compressed valuation. If tonight's earnings deepen the uncertainty rather than resolving it, the 46% decline from the high will have proven to be a waypoint rather than a floor.

The valuation at 19 times forward earnings says the downside is more limited than the 46% decline narrative implies. The advertising business at $3 billion heading toward $6 billion says the upside is more substantial than the mature streaming company narrative suggests. Tonight is where investors find out which narrative the numbers support.

FAQ

1. Is NFLX stock a buy before Q2 earnings at $73?
At approximately 19 times estimated 2027 forward earnings, Netflix trades below the Nasdaq-100 average for the first time in years on a business generating real profits with 325 million paying subscribers. The buy case rests on advertising revenue compounding from $3 billion toward $6 billion while the subscription base continues growing at mid-teens rates. The risk is advertising market softness or content cost inflation compressing the margins the earnings multiple depends on.

2. What does the 46% decline from the all-time high actually tell investors?
It tells investors that the market has repriced Netflix from a hypergrowth platform to a mature streaming company with a developing advertising business. Whether that repricing is accurate or excessive depends on whether advertising revenue can compound at current rates long enough to become material to total revenue. At 19 times forward earnings, the market is pricing the pessimistic version of that answer.

3. Does Reed Hastings leaving affect the investment case?
The founder departure is symbolically significant but operationally limited in its near-term impact. Netflix's current challenges are growth narrative challenges rather than leadership challenges. Whether advertising scales fast enough to sustain double-digit revenue growth is answered by the revenue trajectory rather than by boardroom composition.

4. What is the advertising business argument for buying NFLX stock?
Netflix's ad-supported tier has 250 million monthly active users with over 80% weekly engagement at a scale that most advertising platforms cannot match. Advertising revenue is expected to double in 2026 to approximately $3 billion from approximately 6% of total revenue. If advertising continues compounding at even half the current rate, the revenue contribution accelerates total growth at exactly the moment subscription growth moderates.

5. What are the main risks to buying NFLX stock at current prices?
Advertising market softness reducing the trajectory of the $3 billion revenue target, content cost inflation from live channels or sports rights expansion compressing margins, and the competition from Disney Plus, Amazon Prime, and Apple TV Plus increasing churn in ways quarterly data points do not capture are the three most specific risks to the bull case at current prices.