Netflix Is Down 51% From Its High. History Suggests This Is What Happens Next.
Key Points
After Netflix reported Q3 financial results, its shares continued their monumental slide, immediately falling 6%.
Investors are starting to accept that the company is no longer going to put up impressive growth as it once did.
The streaming stock has always bounced back from drawdowns in the past, but this recovery could take longer.
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The negative momentum continues for Netflix (NASDAQ: NFLX). Last week, the company announced layoffs of 1,000 employees, amounting to 6% of its headcount. The goal with this cut was likely to drive operational efficiencies.
And this week, Netflix revealed financial results for the third quarter, to the market's disappointment. The big news was the company's expectation for revenue growth to continue decelerating, with the top line forecast to rise 11.5% year over year in the fourth quarter. Shares immediately fell 6% following the news.
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The dominant streaming stock currently trades an alarming 51% off its high (as of Oct. 21), which was established 16 months ago in June 2025. History suggests that this is what happens next.
Image source: The Motley Fool.
Past trends support buying the dip
It's extremely challenging for Netflix shareholders to be optimistic about the situation. This feels like uncharted territory since the stock has historically been a monster winner. In the five years leading up their peak, shares had nearly tripled in value.
If you look at the past, however, you'll come away with some reassurance. Since the initial public offering in May 2002, Netflix's stock has dropped at least 50% from a recent high on five different occasions. The heightened levels of volatility are a key part of the Netflix story. Early shareholders know this all too well.
From the start of 2022 to mid-July that year, Netflix's stock price tanked 67%. That fall puts the latest hiccup in its place. During the first six months of 2022, the business lost 1.2 million subscribers, which stunned the market. Investors thought nothing could stop Netflix's incredible growth trajectory. Two straight quarters of a shrinking user base completely crushed market sentiment.
It turns out that Netflix simply experienced a short-term stabilization period after several quarters of massive growth from a pandemic-fueled pull-forward in demand. The business got back on track, and the stock surged 137% over the 12 months following its Q2 2022 financial report.
During the various other times that Netflix shares experienced a huge dip before 2022, it was typically due to strategic missteps or industry forces that hit the fundamentals. These always proved to be temporary hurdles. The company always bounced back. And disciplined investors were rewarded.
Investors seeking a contrarian opportunity might take that as a signal that it's time to buy the stock. Netflix currently trades at a price-to-earnings ratio of 18.9. Compared to the average multiple of 93.3 over the past 10 years, this setup looks like a slam dunk. Netflix might actually be considered a value stock by some.
Why this time could be different
The best investors seem to always be students of history. And after studying Netflix's price history, your conviction might be stronger. However, this company is not what it used to be. And that justifies a lower valuation multiple.
Netflix's Q3 financial results hurt the stock. It's another sign that the business is entering a new phase of its life cycle. Gone are the days of massive expansion. Consequently, there's less confidence that Netflix shares can recover as quickly this time around as they did in the past.
Management expects revenue to total $51.1 billion in 2026, at the lower end of its guidance provided three months ago. Advertising revenue is now projected to be $2.7 billion this year, down from a prior forecast of $3 billion. Investors are also familiar with the fact that Netflix stopped providing subscriber numbers at the start of 2025, a hint that the best days of growth may be in the rearview mirror.
While it has no issue generating earnings and free cash flow, the fact that Netflix's viewership hours rose by just 2% in the first six months of 2026 highlights its maturity. Stiff competition is a top concern for shareholders.
I don't think Netflix's stock will turn its fortune around until the business proves to Wall Street and the rest of the investment community that its growth slowdown has stabilized and that an acceleration is in the cards. No one knows if or when this will happen.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
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