Netflix's Post-Earnings Sell-Off Just Revealed Why It Was Bidding to Acquire Warner Bros. and Roku

Netflix (NASDAQ: NFLX) was down 8.2% in after-hours trading on July 16 at 5:53 PM EDT -- falling to $68.23 per share as investors digested its second-quarter 2026 earnings and weak third-quarter guidance. The problem is abundantly clear -- most of Netflix's revenue growth is coming from price increases.

Netflix's third price increase in less than three years marked a 12.5% jump in U.S. ad-supported monthly pricing, an 11.1% boost in U.S. standard monthly pricing, and an 8% increase in U.S. premium monthly pricing. In its latest quarter, Netflix reported a 13.4% year-over-year increase in revenue and is guiding for a 11.7% year-over-year increase in third-quarter revenue. Which sounds good on paper, until you factor in the glaring reality that price increases are the majority of revenue growth.

Here's what the results mean for investors, how they help paint the picture of why Netflix pursued major acquisitions, and if the growth stock is a buy now.

Image source: Netflix.

Competition for capturing user screen time is intensifying

In February, Netflix declined to raise its offer to buy Warner Bros. Discovery, losing the bid to Paramount Skydance. Netflix was also in the hunt to buy Roku before being outbid by Fox Corp. in June.

The moves were somewhat alarming, given Netflix's history of organic growth through licensing and producing its own content. But investors have been concerned that Netflix's viewer engagement is under pressure from a slew of competitors in traditional media, streaming services, gaming, and user-generated content on platforms like Alphabet-owned YouTube.

At its core, Netflix's business model is to have subscription revenue exceed content costs. The more subscription revenue, the more demand for content. And as its global subscriber base has grown and Netflix has aggressively raised prices, there's more pressure for it to produce high-quality, engaging content.

In its July 16 shareholder letter, Netflix emphasized the importance of content quality:

We've used "engagement" as a shorthand for the value we deliver members. But, as we've developed an increasingly sophisticated understanding of how consumers ascribe value to our service, we know not all hours are equal. Time spent is just one aspect of strong engagement -- quality and variety also matter. The key is to improve across all of those dimensions: quality, variety, and quantity.

In practice, Netflix's definition of quality seems to revolve around proven content, such as Warner Bros. Discovery's intellectual property, including franchises like the DC and Harry Potter universes, Game of Thrones, Looney Tunes, and more. Proven content also includes Netflix's push into sports through the latest MLB Home Run Derby on July 13 and marquee NFL games like opening week, Thanksgiving Eve, Christmas Day, and week 18.

Two sides to the Netflix narrative

The glass-half-empty view of Netflix is that the company is desperately trying to buy content at premium prices to keep subscribers engaged and justify price increases. And that Netflix could eventually resemble a modern-day network with an emphasis on live-streamed events rather than pre-produced shows and movies. Netflix's quarter after quarter of slowing growth and dependence on price increases is fueling that narrative, which is why the stock is tanking.

However, the glass-half-full view on Netflix is that the company is simply bigger than it used to be and has the deep pockets to branch into new markets rather than relying heavily on its own content. To its credit, Netflix isn't willing to pay any price for content, as evidenced by its willingness to be outbid by much smaller companies in Paramount-Skydance and Fox. And Netflix has collected a sizable consolation prize in the process through its $2.8 billion termination fee from Warner Bros. Discovery.

Netflix's latest results are disappointing, and it was a mistake in hindsight to raise prices so much in just a few years. But the stock's decline reflects that pessimism -- with Netflix sporting its lowest valuation in years -- trading at just 19.1 times 2026 full-year earnings estimates as of its after-hours price at the time of this writing.

Netflix is no stranger to taking risks

Netflix has always been a risk-taking company, from disrupting Blockbuster through mail-order DVDs to pioneering the modern streaming platform to producing award-winning live-action and animated series and movies. Each evolution has been riddled with bumps along the way and periods of investor loss of confidence. And right now, Netflix is enduring another such period as investors question the price it is willing to pay for quality entertainment and if it's making the right choices with sports and pushing into daytime and mobile device viewing.

So while it's understandable if some investors want to wait for the dust to settle and for Netflix to regain its footing, folks who are confident in Netflix's long-term strategy are getting an impeccable opportunity to buy the streaming service stock at a dirt-cheap price.

Daniel Foelber has positions in Netflix. The Motley Fool has positions in and recommends Alphabet, Netflix, Roku, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.