Netflix's trailing profit has never been higher, yet its stock remains about a third below its peak. Motley Fool analyst Daniel Sparks says the gap reflects a slowing growth rate rather than a weaker business, and argues the sell-off was justified even as he stops short of calling the stock a buy.
Netflix has never made more money than it is making right now. Net income over the past four reported quarters totals about $13.65 billion, comfortably above the record $10.98 billion the company earned in all of 2025. Yet the stock has fallen about 35% from its 52-week high of $126.71, trading near $82 after a bounce from about $72 earlier this month.
The profit record holds up
That trailing profit includes a one-time boost. Netflix collected a $2.8 billion pre-tax termination fee, roughly $2.3 billion after tax, in the first quarter, when its agreement to buy Warner Bros. Discovery's studios and streaming business ended after Warner Bros. Discovery accepted a rival's higher offer. That money counts, but it won't repeat.
Set it aside, and the record still stands on the operating line. Operating income over the past four quarters totals about $14.4 billion, ahead of the $13.3 billion generated in all of 2025. Second-quarter operating income rose 11% year over year to $4.2 billion, and management continues to forecast a 31.5% operating margin for 2026, up from 29.5% last year.
Revenue growth is decelerating
What changed is the top line's speed. Netflix's year-over-year revenue growth peaked at 17.6% in the fourth quarter of 2025. It then slowed to 16.2% in the first quarter, eased to 13.4% last quarter, and management forecasts 11.7% growth for the third quarter.
For the full year, management's revenue outlook of $51.0 billion to $51.4 billion implies 13% to 14% growth for 2026. Advertising revenue is roughly doubling to about $3 billion, doing part of the work. At $126.71, the stock traded at about 50 times its 2025 earnings of $2.53 per share. Today, the stock's price-to-earnings ratio is about 25 as reported, or about 31 with the fee stripped out, and shares trade at about 21 times expected 2027 earnings.
Hold, not a buy, Sparks argues
Sparks says the sell-off that got shares to today's level was justified, but he doesn't think shares are cheap enough to call a buy. A multiple of 50 times earnings priced Netflix for a growth era management itself now says is moderating, and he views the repricing as the market updating its view of a maturing business rather than malfunctioning.
Shares now trade near 21 times expected 2027 earnings, which Sparks calls a reasonable price for a business forecasting operating income growth of more than 20% with advertising revenue on track to double. Still, he says shares are priced more like a hold than a buy, since growth could decelerate further in 2027 and competition for viewing time isn't letting up.
Source: The Motley Fool
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