Netflix Stock Has Always Overcome the Odds. Has It Finally Hit a Wall?

Netflix (NASDAQ: NFLX) has reinvented itself many times over its history, from its humble beginnings as a DVD rental service to an online streamer to a content creator. Today, it has more subscribers than any other streaming company, award-winning series and movies, an ad-supported tier, and more.

It has faced many challenges over the years, triumphing over the naysayers, to get to this place. However, it's starting to slow down. Is this another challenge that it can overcome? Or has it finally hit a wall?

The streaming leader

Netflix is facing competition from all the big, established film studios that have been around much longer than it has, but it has come out on top. It has 325 million paid subscribers as of the end of 2025, and likely more now. It has the lowest churn in the industry at 2%, which means it's keeping its viewers.

It reported strong performance in the third quarter. Revenue increased 12% year over year, and operating margin expanded from 28.2% to 34.6%. Earnings per share were $0.87, up from $0.59 last year, and free cash flow was $2.9 billion, up from $2.7 billion last year.

Image source: Netflix.

According to Statista, it has by far the most subscriptions of any of the large streamers. According to Pew Research, 72% of U.S. adults say they watch programming on Netflix, the highest of any streaming company.

However, Netflix made news this week when it fired its content head and film unit head and laid off 1,000 workers, and the revenue increase was its lowest in three years. That's because the U.S. business isn't up to par. The company is doing very well with localized content globally, but on its home court, content isn't resonating. Management noted that it needs "a big buzzy show that members love and talk about all over the world," and it has hired Disney alumnus Peter Rice to make that happen.

Has Netflix hit a wall?

Netflix has a history of evolving to generate higher revenue and expand its reach. That's why it now has ad options, games, and live events.

The business is in good shape. CEO Greg Peters noted that you can see that in its churn, which was lower than last year. He noted the Fall lineup, which includes the next season of many favorites in addition to new original content. That may not be coming fast enough, and the new executives are expected to bring a fresh eye to the content slate going forward.

Management doesn't feel like it needs to do anything drastic right now. "Our business and our business flywheel are working. There is no need for a fundamental shift in the strategy," CEO Ted Sarandos said. The problem right now is boosting the U.S. business, and it feels that this can be addressed with better and refreshed content.

However, there may be some short-term pressure. After the Q3 report, management slightly lowered full-year guidance to a 13% increase, which it attributed to a delay in an ad product rollout.

Where does that leave Netflix stock?

Netflix stock is down 46% over the past year, and it's trading at a price-to-earnings ratio of 19, which is closest to its lowest ever.

What I see is a solid business going through a challenge. Netflix is still reporting double-digit sales growth, and it's highly profitable. It's the leader in a changing media industry that's only going to move even more toward streaming. It has a great track record of emerging from tough spots intact and stronger, and management has the right approach in noting that it doesn't need a change in strategy.

I don't think it's hit a wall, and I think it can rebound and offer value for investors.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.