Netflix Is Down 38% Since Completing Its 10-For-1 Stock Split. Here's Why the Sell-Off Is Worsening After Its Latest Earnings.

Netflix (NASDAQ: NFLX) stock jumped in early November 2025 after the company announced a 10-for-1 stock split. But since completing the split on Nov. 17, 2025, Netflix stock is down 37.9% as of market close on Oct. 20 -- which doesn't account for Netflix's post-earnings performance. Netflix is down 5.9% to $64.62 per share in after-hours trading as of 5:28 PM ET. If Netflix holds that price, it will mark a new two-year low.

Here's why Netflix is falling in response to its third quarter 2026 report, and if the streaming service stock is a buy now.

Image source: Netflix.

Netflix's ad revenue forecast falls by $300 million

Netflix's Q3 2026 revenue increased 11.8% compared to Q3 2025, and operating margins increased from 28.2% to 34.6%. However, Netflix's updated 2026 revenue forecast of $51.1 billion is 0.2% below the midpoint of its prior 2026 revenue forecast range.

In the earnings release, Netflix said that subscription growth outperformed expectations, but it now expects $2.7 billion in full-year ad revenue, down from a prior forecast of $3 billion, due to a slower rollout of certain ad product capabilities.

While advertising accounts for a small share of Netflix's total revenue, it has been one of its fastest-growing segments. In 2025, ad revenue increased 2.5x to over $1.5 billion. Netflix's ad-supported tier helps keep price-sensitive customers within its ecosystem and boost its overall subscriber numbers. The appeal of Netflix ads is also an important indicator for how advertisers view Netflix's platform relative to Netflix's competitors -- including YouTube -- which is owned by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Netflix's competition extends far beyond legacy media and streaming platforms

YouTube's share of U.S. TV time is growing far faster than Netflix. In Alphabet's latest quarter, which was the quarter ended June 30, 2026, YouTube ads raked in $11.06 billion in revenue. In the quarter Netflix just reported, it produced $12.87 billion in total revenue -- meaning YouTube could eventually eclipse Netflix in revenue.

One of the major concerns with Netflix isn't just higher competition in streaming. It's that the living-room-style streaming industry is being heavily impacted by a shift in viewership from TV to mobile -- a trend that YouTube, Instagram -- owned by Meta Platforms (NASDAQ: META) -- and TikTok are well positioned to capitalize on.

Netflix's business model depends on producing and licensing an array of multi-genre quality content that keeps subscribers engaged and justifies price increases. At its best, the strategy is incredibly effective because it provides Netflix with predictable, recurring cash flows and helps it manage expenses to sustain high margins. But an onslaught of professionally produced and amateur content challenges that business model.

It's also worth noting that one reason Netflix's margins are so high is that it has been aggressively raising prices. Earlier this year, Netflix implemented its third price increase in less than three years -- with higher subscription rates across its U.S. ad-supported, standard, and premium tiers. The price increase puts pressure on subscribers, who have no shortage of alternatives. And many are strained by cost-of-living pressures and inflation. The price increases would have made more sense if Netflix had acquired Warner Bros. Discovery -- thereby expanding its intellectual property portfolio. But since Skydance ultimately outbid Netflix, the price increase was probably a step too far in hindsight.

Netflix trades at 17 times 2027 earnings

Netflix's steep sell-off stems from its slowing growth and increased competition. From a valuation perspective, Netflix is now trading like a high-quality value stock, not the high-octane growth stock of years past.

When stocks continue to fall with no end in sight, it can be difficult to endure. At times like this, it's important for investors to revisit the reasons they bought a stock in the first place or added it to a watchlist, and update their thesis accordingly.

While Netflix's slowing growth is definitely cause for concern, I think the narrative that Netflix has to capture a large share of mobile viewing is overblown. And the release of the Apple iPhone Duo -- which complements other foldable phone options like the Samsung Galaxy Z Fold and Google Pixel Pro Fold -- should benefit streaming companies like Netflix by increasing screen sizes and making horizontal viewing more appealing. That way, Netflix doesn't have to go toe-to-toe on vertical alignment with apps like Instagram and TikTok.

It's also a mistake to downplay just how much of a cash cow Netflix is. In addition to its high margins and recurring revenue, Netflix exited its latest quarter with $8.19 billion in cash and cash equivalents compared to $12.66 billion in long-term debt -- giving it a low-leveraged balance sheet. Whereas many other legacy media companies have far more debt relative to cash. And hyperscalers like Amazon, Alphabet, and Meta Platforms have seen their free cash flows plummet as they ramp up spending on artificial intelligence.

In this vein, Netflix may appeal to value investors looking for a high-quality company at a depressed valuation. Average analyst consensus estimates have Netflix earning $3.80 per share in 2027 -- meaning Netflix is trading at just 17 times that earnings forecast at the time of this writing.

Netflix doesn't have to return to the breakneck growth rates of years past to be a good buy now. It just needs to prove to investors that it can hold its own against mounting competition and produce quality content that keeps subscribers entertained and justifies its elevated price tiers. Some investors may prefer to wait for Netflix to show more meaningful signs of growth before buying the stock. But for investors who don't mind volatility, Netflix's valuation is at the point where the company isn't expected to deliver lights-out results.

Daniel Foelber has positions in Netflix. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, and Netflix. The Motley Fool has a disclosure policy.