Netflix (NASDAQ: NFLX) reports second-quarter results on July 16, and does so from an unusual angle: The business continues to grow, but the stock has been down for the year. As of this writing, shares are trading around $76, down about 42% from the $130.23 high they set last summer, even as revenue, earnings and the company’s nascent advertising division continue to grow. With the report just over a week away, is now a good time to buy stocks?
Let me break down what this quarter should show and whether the reduced price is worth the risk of another downgrade.
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A business that continues to grow
Netflix’s problem, if you can call it that, is not a business problem. In the first quarter of 2026, revenue grew 16% year-over-year to $12.25 billion, driven by member growth, price increases and a fast-growing advertising business. Meanwhile, its operating margin increased to 32.3% from 31.7% in the same quarter a year ago. The company has stopped disclosing its subscriber numbers each quarter, but it has grown to more than 325 million paid memberships and now entertains an audience approaching 1 billion people.
The streaming service’s advertising division is something to watch. Netflix expects advertising revenue to roughly double this year to about $3 billion. It now works with more than 4,000 advertisers, up about 70% from a year ago, and the ad-supported plan has become the most popular choice for new registrars in countries where it is offered. For a company that has long relied almost entirely on subscription fees, this second mechanism makes sense because it allows Netflix to increase revenue per member without relying solely on price increases. For full-year 2026, management forecasts revenue of $50.7 billion to $51.7 billion, up 12% to 14%, and operating margin of approximately 31.5%.
So why did the stock fall 42%?
If the results are so good, why did the stock lose 42%? Two reasons. First, Netflix entered 2025 with incredibly high expectations, and once its projections stopped exceeding the ever-increasing bar, that premium began to decline. Secondly, the company spent months fighting for a takeover. Netflix has agreed to acquire Warner Bros. studios. and HBO Max Warner Bros. Discovery in a deal valued at about $72 billion that sparked a competing bid and some uncertainty – before Netflix ultimately pulled out and moved to a share buyback instead.
The story continues
With this distraction, the story is now simpler: a steadily growing business trading well below its highs.
Buy before report?
Evaluation is where the decision gets interesting. Since the drop, Netflix shares are trading at about 25 times earnings and about 23 times next year’s expected earnings. For a company that, in its mid-teens, is still growing revenue, growing profits and doubling its advertising business, that’s a much more reasonable price than the stock price at its peak.
It’s worth assessing how much the stock’s rating has already dropped. A year ago, Netflix had one of the richest companies in the tech industry. Today, the company’s shares are trading at just their previous multiple, although they are still growing faster than most large-cap peers. The company is also generating record free cash flow and using some of it to repurchase shares, quietly boosting earnings per share. None of this guarantees that the stock has bottomed, but it does mean that today’s buyers are paying a much more reasonable price than they were 12 months ago.
Of course there are risks. The streaming industry is fiercely competitive, and Netflix must continue to spend heavily on content to maintain its lead among deep-pocketed competitors. In addition, there are risks associated with purchasing before July 16th. Buying just before an earnings report is a bet on the outcome of one day. If subscriber trends or another key metric such as earnings growth disappoint, the stock could suffer regardless of whether its valuation is reasonable or not.
So, should you buy Netflix before the report? For long-term investors, I think the stock price is finally attractive enough to take a position, but not to try to quickly cash in on a potential post-earnings bounce. Stocks could just as easily fall. However, if you like Netflix for its long-term potential, this looks like a smart entry point.
Should you buy Netflix shares right now?
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Daniel Sparks and its clients have no positions in any of the stocks mentioned. The Motley Fool has positions and recommends Netflix and Warner Bros. Discovery. The Motley Fool has disclosure policy.
Netflix shares are down 42% from their high on July 16 earnings. Is it worth buying them before the report? originally published by The Motley Fool