Netflix's Decade of Dominance

Over the past ten years, Netflix's (NASDAQ: NFLX) stock has rallied an impressive 670%, outperforming the S&P 500's (SNPINDEX: ^GSPC) 260% gain. Despite my initial concerns about the company's competitive threats, rising expenses, and high valuation, Netflix has continued to evolve and grow. As a long-time observer of the company, I've taken a fresh look at its strengths and weaknesses to determine if it's a worthwhile investment.

Challenges and Changes

Netflix's stock closed at a record high of $133.91 per share on June 30, 2025, but has since pulled back to around $77. Several changes and challenges have contributed to this decline. For many years, investors tracked Netflix's growth by its subscriber count. However, starting in the first quarter of 2025, the company stopped reporting those subscriber numbers, citing the introduction of its ad-supported and paid sharing plans as the reason. This change suggested that Netflix's high-growth days were over.

Netflix also plans to start disclosing its engagement and viewing hours just once a year (rather than twice) in 2027. While the company claims that its revenue, operating margin, and free cash flow (FCF) provide investors with a clearer picture of its overall growth, the data tells a different story. Netflix's year-over-year revenue growth decelerated over the past two quarters, while its FCF turned negative in its latest quarter.

Revenue Growth and Operating Margin

The following table highlights Netflix's revenue growth and operating margin over the past four quarters:

  • Q2 2025: Revenue growth of 15.9%, operating margin of 34.1%
  • Q3 2025: Revenue growth of 17.2%, operating margin of 28.2%
  • Q4 2025: Revenue growth of 17.6%, operating margin of 24.5%
  • Q1 2026: Revenue growth of 16.2%, operating margin of 32.3%
  • Q2 2026: Revenue growth of 13.4%, operating margin of 33.4%

As you can see, Netflix's revenue growth has slowed down significantly over the past two quarters, while its operating margin has decreased. This is a concerning trend, especially given the company's high valuation.

FCF and Acquisition Attempts

Netflix's FCF growth has also turned negative in its latest quarter, a red flag for investors. Another concern is the company's attempt to buy Warner Bros. Discovery (NASDAQ: WBD) for $83 billion. Although it ultimately lost that bidding war to Paramount Skydance (NASDAQ: PSKY) in February, that bid indicated it was running out of room to grow organically. This is troubling because Netflix is often known for creating new hit IPs rather than acquiring existing ones.

Valuation and Growth Prospects

Despite these challenges, Netflix's stock still looks reasonably valued at 21 times next year's earnings. At its all-time high last October, it was trading at 37 times this year's earnings. That high valuation was unsustainable, since Netflix shouldn't be valued as a high-growth tech stock, but its current valuation seems fair for a higher-growth media company. With over 300 million paid global members (as of the end of 2024), a growing content catalog, and the scale to generate stable profits from a capital-intensive business model, Netflix remains a solid long-term investment.

However, it's unlikely to replicate its gains from the past decade over the next ten years. The Motley Fool's Stock Advisor analyst team has identified the 10 best stocks for investors to buy now, and Netflix wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. It's worth noting that Stock Advisor's total average return is 960%, a market-crushing outperformance compared to 213% for the S&P 500.

Conclusion

After ten years of covering Netflix, I've come to the conclusion that it's still a solid long-term investment. While it may not be the best buy right now, its growth prospects and stable profits make it a worthwhile consideration for investors. However, it's essential to keep in mind that Netflix's high-growth days are behind it, and its valuation is no longer unsustainable. As with any investment, it's crucial to do your own research and consider your own risk tolerance before making a decision.