Down 17%, Is Netflix a Buy After Walking Away From Warner Bros. and Roku?
Key Points
The stock fell again in June after reports suggested Netflix was outbid, again, for a second acquisition opportunity.
Management is showing discipline in managing the company's resources, which is underappreciated by Wall Street.
The stock is trading at a lower multiple of earnings, which may undervalue the brand.
- 10 stocks we like better than Netflix ›
Netflix (NASDAQ: NFLX) stock is down 17% year to date and slipped again on June 16 after reports linked the company to a failed bid for Roku. It's now official that Fox has reached an agreement to acquire the popular streaming platform in a $22 billion deal, which means if the reports about Roku are accurate, Netflix has now missed on two deals this year. Earlier this year, Netflix walked away from Warner Bros. after Paramount Skydance swooped in with a better offer.
Wall Street believes failure to win these deals indicates a weakening growth story, but is that the right interpretation?
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Image source: The Motley Fool.
Disciplined capital allocation
Management has emphasized that acquiring quality assets would be a luxury, not a necessity, for its growth. It has over 325 million paying members, helping it generate $13 billion in profit on $47 billion of trailing revenue.
Wall Street might think Netflix is running out of opportunities, necessitating acquisitions to drive further growth. This may explain the stock's recent dip. But that doesn't align with the current momentum in the business and where it is investing.
Netflix is set to spend $20 billion this year on content production. The decision to not engage in a bidding war for these deals reflects discipline. Management understands the value of its content spending and the returns it will yield over time. It clearly concluded that the price required to win a bidding war would yield a lower return than investing in its own content. That's the kind of disciplined capital allocation that Warren Buffett loves.
Why Netflix is still a solid investment
Netflix still has a small share of total TV viewing time. It estimates that it has captured only 45% of its addressable market among broadband households. That indicates the potential for as many as 800 million subscribers.
The business looks healthy. Revenue grew 16% year over year in the first quarter. These are solid numbers for a competitive market. Google's YouTube has consistently ranked higher than Netflix in TV viewing share.
Netflix is expanding its content library to include live events and video podcasts, which continue to show solid traction with its members. These are opportunities to gain a larger share of people's viewing time and capture more of their addressable market.
The stock is trading at just 21 times 2026 earnings estimates. This seems too conservative for a strong brand generating over a 30% operating margin and still growing revenue at double-digit rates. Investors have the chance to buy shares in a disciplined company at an attractive price with room to grow.
Should you buy stock in Netflix right now?
Before you buy stock in Netflix, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netflix wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $417,305!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,293,148!*
Now, it’s worth noting Stock Advisor’s total average return is 936% — a market-crushing outperformance compared to 209% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of June 21, 2026.
John Ballard 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.
Recommended Articles
