Why Netflix Stock Dropped 24% in the First Half of 2026
Key Points
Netflix has always overcome the naysayers and created its own opportunities in streaming.
It's growing by double digits and has a high operating margin.
The stock trades at an attractive valuation.
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Netflix (NASDAQ: NFLX) stock fell 24% in the first half of the year, according to data provided by S&P Global Market Intelligence. Investors are worried about future opportunities, acquisitions, and the departure of founder and chairman Reed Hastings.
The global streaming sensation
Netflix defied the odds, and competition from the world's largest media companies, to become a powerhouse streaming company. It sits atop a massive content library, much of which has come from its own creative studios, and it has more than 300 million global subscribers.
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Investors have counted it out before in the past, and it has always rebounded, surprising the market with innovative ways to keep its growth engine moving. From the very beginning, when it changed from a video drop-off company to take on the emerging streaming industry, it has stayed ahead of the curve and proved its prowess. And the naysayers who didn't think its content could match the big studios are now watching it produce top-rated series and films that keep subscribers engaged.
Image source: Getty Images.
It seemed to be in danger, again, when the pandemic started and every studio created its own streaming network. But while many other networks were acquired or merged, Netflix is still at the top of the heap. It successfully rolled out an ad-supported streaming tier to stay competitive, and it now showcases live sporting events as well as other live entertainment, and it also offers games.
It continues to report double-digit growth, and it plans its production based on recurring revenue, targeting profitability goals and moving backward, which ensures strong margins. In the 2026 first quarter, revenue increased 16% year over year, which was higher than expected, leading to a higher operating margin of 32.3%, up from 31.7% last year. It's targeting a 31.5% operating margin for the full year.
What's on next
The question is, what's next? Netflix stopped reporting subscriber numbers about a year ago, and revenue growth comes from a mix of subscriber growth, price hikes, and ads.
The company continues to invest in the business through improving technology with artificial intelligence (AI) as well as finding the next popular series.
It lost its bid to acquire Warner Bros. Discovery, and it had also considered buying Roku. While these deals didn't pan out, they do represent a path forward to expand the business. However, they also represent uncertainty about what's coming next. The stock also dropped after the company announced that founder and chairman Reed Hastings would be stepping down, although it has been falling for a while now.
At the current price, Netflix trades at 25 times trailing 12-month earnings. That looks like an attractive entry point, but investors may want to wait and hear the company's latest update and consider its trajectory when it reports second-quarter earnings next week.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Roku, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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