Netflix Shares Continue to Fall. Is It Time to Buy the Dip?

The share price of Netflix (NASDAQ: NFLX) continued its downward trend after the video streaming company issued cautious guidance when it recently reported its fourth-quarter results earlier this week. The stock is now down more than 37% from its recent highs and 11% lower on the year, as of this writing.

Let's take a closer look at its results and guidance to see if now is a good time to buy the stock on the dip.

Image source: Getty Images.

Solid growth but cautious outlook

Netflix turned in another solid quarter of growth, as streaming viewers tuned in to watch the final chapter of its popular series Stranger Things, which garnered 120 million viewers. The company ended the year with 325 million subscribers, an almost 8% year-over-year increase. Ad revenue, meanwhile, skyrocketed 2.5x to $1.5 billion, and management projected that ad revenue will double this year. However, the bulk of its revenue growth has been coming from price hikes.

Revenue growth was once again strong across geographies. U.S. and Canada revenue jumped 18% to $5.3 billion, while EMEA (Europe, Middle East, and Africa) revenue also increased 18% to $3.9 billion. Asia-Pacific climbed 17% year over year to $1.4 billion, while Latin America revenue rose 15% to $1.4 billion but was up 20% in constant currencies.

The company's overall revenue jumped nearly 18% to $12.05 billion, which was just above the analyst $1.97 billion consensus, as compiled by LSEG. Earnings per share (EPS) soared 30% to $0.56, which just edged out the $0.55 analyst consensus.

Looking ahead, Netflix forecasted Q1 revenue to rise by 15% with a 32.1% operating margin. For the full year, it is expecting revenue of between $50.7 billion and $51.7 billion, representing 12% to 14% growth, with a 31.5% operating margin. That's a meaningful revenue deceleration but a nice boost in operating margin from 29.5%, which should power strong EPS growth.

Should investors buy the dip?

Netflix turned in another solid quarter of growth, and its ad business is starting to gain scale. This is important because ad revenue will likely become the biggest driver of its revenue growth in the future. The base is still relatively small, but the company is gaining traction, and it is very much a flywheel business. More ad-tier subscribers lead to more advertisers using its platform, which leads to more ad revenue that pays for more content, resulting in increased viewership.

At the same time, the company is in the process of acquiring the studio and streaming assets of Warner Bros. Discovery (NASDAQ: WBD). This will give it access to important content and intellectual property, including Game of Thrones, Harry Potter, and the DC Universe, from which it can continue to derive new content going forward. It also gives Netflix a massive library of ad-friendly content like Friends and The Big Bang Theory.

Trading at a forward price-to-earnings ratio (P/E) of 26 times 2026 analyst estimates, the stock is now at a much more reasonable valuation than just a few months ago. As such, I'd be a buyer of this streaming winner.

Geoffrey Seiler has positions in Warner Bros. Discovery. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.