Netflix Is Down 41% in 1 Year. Could the Sell-Off Be Nearing an End?

Netflix (NASDAQ: NFLX), the streaming leader, has had quite an interesting year, to say the least.

Investors have watched the share price plummet some 41% over the past 12 months and 26% so far in 2026. The malaise has been punctuated by the failed bid to buy Warner Bros. Discovery (NASDAQ: WBD).

Last summer and fall, there was constant chatter that Netflix was the front-runner in the bidding war to acquire Warner Bros. Discovery (or rather, most but not all of its assets), but investors balked, thinking that Netflix was paying too much for assets that would be hard to integrate. There were also concerns that it would be saddled with debt, and that it would have to change its business model.

Then, when Paramount Skydance (NASDAQ: PSKY) swooped in with a large enough counter-bid to snatch Warner Bros. Discovery away from Netflix, some investors decried the loss of a potentially transformational purchase and asked, "OK, what's next?"

Image source: Getty Images.

Slowing revenue growth, rising margins

Netflix has also dealt with declining revenue growth rates over the last few quarters. It grew 13% year over year in the second quarter, down from 16% in Q1 and 18% in Q4 2025.

Its guidance for Q3 calls for revenue of $13 billion, which would be 12% year-over-year growth. The company also narrowed its revenue forecast for 2026 to a range of $51 billion to $51.4 billion. The previous range was $50.7 billion to $51.7 billion.

On the other hand, viewership was up 2% in the first half of 2026, better than the 1.5% viewership growth rate in the first half of 2025.

Further, its operating margin keeps rising. It was at 33% in Q2, up from 32% in Q1 and 24% in Q4 2025. The outlook calls for a 33% operating margin in Q3 and 31.5% for the year. That would be up from 29.5% in 2025.

The rising margins could have a lot to do with the growth of its higher-margin advertising sales. In 2026, Netflix expects to double its ad revenue to $3 billion.

It's time to buy

I think the concerns are overblown. Netflix is still by far the streaming leader with the most hours of video watched and the most viewers.

Also, the company has lots of free cash flow. Netflix expects to have $12.5 billion in free cash flow in 2026, up from $10.1 billion in 2025. That provides solid ground on which to grow, possibly by getting more into streaming live TV events to boost engagement and ad revenue.

The slightly declining revenue growth rates and rising margins are signs of a maturing company -- and, in this case, one that remains the leader in its industry. The sell-off has brought down Netflix's valuation immensely. It is trading at just 21 times earnings, down from 63 times earnings a year ago. Its P/E ratio is at its lowest level in four years.

Wall Street is bullish on Netflix, with 68% of analysts rating it as a buy. Based on their median price target of $94.50, Netflix stock is expected to return about 37% over the next 12 months, so it looks like a strong buy right now.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.