Should You Buy the Dip in Netflix Stock?

There may be no other company that has fallen out of favor with investors faster than Netflix (NASDAQ: NFLX). In 2025, shares rocketed higher by about 37% through the first six months of the year. Since the summer, however, Netflix stock has been on a downward spiral -- cratering by nearly 27%.

With shares trading at depressed price levels, is now a good opportunity to buy the dip in Netflix? Or, should investors stay on the sidelines and avoid a falling knife?

Image source: Netflix.

Why is Netflix stock down?

As a services business, Netflix is vulnerable to macroeconomic themes like inflation and how that can impact consumer purchasing power. While the effects of inflation and tariffs continue to ripple through the economy, recent GDP growth suggests that consumer spending remains resilient and is holding up quite well -- all things considered.

The main drag on Netflix stock has nothing to do with the economy or even the current trajectory of the business. Rather, Netflix has been in a months-long contest with Paramount Skydance to acquire the film and television assets of Warner Bros. Discovery (NASDAQ: WBD).

Smart investors have been asking the following questions:

• How long could the antitrust process take should Netflix and Warner Bros. come to an agreement?
• How will Netflix finance the transaction?
• How does the content catalog from Warner Bros. Discovery add strategic value to Netflix?

Here's the big picture: There are a lot of uncertainties that come with acquisitions. And if there's anything Wall Street dislikes, it's unpredictability.

Forget Warner Bros.: It's all about the business model

While the Warner Bros. acquisition now dominates the talking points surrounding Netflix, investors should not become distracted by the mechanics of this deal. Instead, focus on what you do know as opposed to what you don't know.

Here's what we know: The last five years have been transformational for Netflix. Of course, the stay-at-home theme during the COVID-19 pandemic became a subtle catalyst for the company. However, the profile below hints at something deeper -- Netflix's accelerating revenue complemented by an improving gross margin profile indicates that the company has been able to run an efficient business in a post-pandemic environment.

NFLX Revenue (TTM) data by YCharts

Another way of saying this is that there can be a stickiness factor when it comes to a discretionary service like Netflix. The company has been able to retain its customers thanks to smart capital allocation in the form of content refreshes -- constantly updating its library with new series.

Netflix's business model of recurring revenue combined with profitable subscriber economics has fueled a surge in earnings growth. In essence, Netflix has created a lucrative virtuous cycle featuring strong retention rates, low churn, and steady growth across both the top- and bottom-lines.

This reinforcement loop has provided Netflix with additional financial flexibility to pursue other growth avenues across advertising, immersive entertainment, and inorganic opportunities such as the Warner Bros. deal.

Is Netflix stock a buy under $90?

At first glance, Netflix's forward price-to-earnings (P/E) multiple of 27 might not appear like a bargain.

NFLX PE Ratio (Forward) data by YCharts

However, Netflix is trading at a considerable discount to some less profitable streaming companies and entertainment conglomerates. In addition, Netflix is hovering near its cheapest level in five years based on forward earnings estimates.

While I suspect the stock will continue to exhibit some volatility so long as the Warner Bros. deal hangs in limbo, I think now is still a good opportunity to scoop up some shares of Netflix at a discount.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Roku, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends TKO Group Holdings. The Motley Fool has a disclosure policy.