Netflix: The Days of Rapid Growth Are Over
Key Points
Netflix management has decided to publish its “What We Watched” engagement report only once a year.
The company's operating strategy has evolved dramatically in recent years.
Slower revenue gains should warrant a lower valuation multiple.
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When Netflix (NASDAQ: NFLX) reported its financial results for the second quarter, shares initially sold off. Revenue had increased 13.4% year over year to $12.6 billion, but this figure came in below Wall Street forecasts.
Investors must understand that this streaming stock is now in a different phase of its life cycle. The days of rapid growth are over for Netflix.
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Image source: Netflix.
Clear signs of Netflix's new era
From 2025 to 2028, the consensus view among sell-side analysts is that the company will post an annualized revenue gain of 11.6%. In the prior three years, the top line increased at a compound annual rate of 12.7%. And before the COVID-19 pandemic, Netflix was consistently raising its sales by more than 20% per year.
Netflix is now a more mature business, and the leadership team's updated reporting policy highlights this.
Netflix stopped providing quarterly subscriber metrics in 2025. It now reveals this critical number only when certain milestones are reached.
Additionally, the business just announced that it will show investors engagement data from its "What We Watched" reports only once per year (down from twice) starting in 2027. It's not hard to figure out that management is deliberately withholding information that it believes might support a pessimistic view from market participants.
The company's strategy has evolved. It's now doing things that were previously unthinkable. Just in the past few years, Netflix has cracked down on password-sharing, introduced an ad-based tier, launched games, shown video podcasts, and started spending more on live events. There are also reports that the business is considering live TV and bundling with other streaming services.
Competition is another factor that can't be overlooked. The battle for eyeballs and attention has never been so intense. Netflix has always had to face direct rivals, like other streaming platforms, many of which also have deep pockets to pay up for content.
Social media is another major source of competition. Whether it's from TikTok or Meta Platforms' Instagram, for instance, short-form video is extremely popular.
Investment implications
Netflix shares currently trade 47% off their peak (as of July 27). The market might be starting to realize and accept that the growth story is slowing. There is a clear investing takeaway.
The stock can be bought today at a price-to-earnings ratio of 22.3. Netflix bulls might view this as a very cheap opportunity. However, given that the company isn't going to grow the way it used to, the shares should trade at a lower valuation than in the past.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Netflix. The Motley Fool has a disclosure policy.
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