Netflix Stock Plunges 38% Post-Split: Is It a Buy Now?
💡 Key Takeaway
Netflix's ad revenue miss and slowing growth have crushed the stock, but its depressed valuation and strong balance sheet may appeal to value investors willing to endure volatility.
Netflix's Post-Split Sell-Off Accelerates
Netflix completed a 10-for-1 stock split on Nov. 17, 2025, but instead of rallying, the stock has tumbled 37.9% through Oct. 20, 2026. The decline worsened after the company reported third-quarter 2026 results, with shares falling another 5.9% in after-hours trading to $64.62, a new two-year low.
The sell-off was triggered by a downward revision to Netflix's full-year ad revenue forecast, now $2.7 billion versus the prior $3 billion, due to a slower rollout of certain ad product capabilities. Total revenue guidance for 2026 was also trimmed slightly, coming in 0.2% below the midpoint of the previous range.
Despite the guidance cut, Netflix's core business showed strength: revenue grew 11.8% year-over-year, operating margins expanded from 28.2% to 34.6%, and subscription growth beat expectations. However, the ad-supported segment, which had been a fast-growing bright spot, is now under scrutiny.
Competitive pressures are mounting, particularly from YouTube, which is rapidly gaining share of U.S. TV time and could eventually surpass Netflix in total revenue. The broader shift from traditional TV to mobile viewing also favors platforms like YouTube, Instagram, and TikTok, challenging Netflix's living-room-centric model.
Netflix has also been raising prices aggressively—three increases in under three years—which may be straining subscribers amid cost-of-living pressures. The company's failed bid for Warner Bros. Discovery, which would have expanded its intellectual property portfolio, makes the price hikes seem even riskier in hindsight.
Valuation and Competitive Dynamics in Focus
Netflix's stock now trades at just 17 times 2027 earnings estimates, a far cry from its high-growth days. This valuation reflects slowing growth and heightened competition, but it also positions Netflix as a potential value play for investors willing to look past near-term headwinds.
The ad revenue shortfall is particularly concerning because advertising has been one of Netflix's fastest-growing segments, more than doubling to over $1.5 billion in 2025. A slower rollout of ad products could delay the company's ability to monetize its large subscriber base and compete with ad giants like Google and Meta.
Competition from YouTube is intensifying. In its latest quarter, YouTube ads generated $11.06 billion in revenue, approaching Netflix's total quarterly revenue of $12.87 billion. YouTube's growing share of TV time and strength in mobile viewing pose a long-term threat to Netflix's engagement and pricing power.
However, Netflix's balance sheet remains a fortress, with $8.19 billion in cash and only $12.66 billion in long-term debt—a low leverage ratio compared to legacy media peers. High margins and recurring revenue provide a cushion, and the company continues to invest in content to retain subscribers.
The market's reaction may be overdone. While Netflix faces real challenges, its brand, content library, and financial health give it time to adapt. The key question is whether it can sustain subscriber growth and justify price increases without losing customers to cheaper alternatives.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Netflix's beaten-down valuation and strong balance sheet make it an attractive contrarian buy for long-term investors.
The market is overly focused on near-term ad revenue headwinds while ignoring Netflix's robust margins, recurring revenue, and low debt. At 17 times 2027 earnings, the stock prices in pessimism, offering upside if Netflix stabilizes growth and proves it can compete.
What This Means for Me
