3 Reasons to Avoid Netflix Stock Despite Its 28% Surge in 6 Months

Core Insights - Netflix has raised its revenue forecast for 2025 to $44.8-$45.2 billion, reflecting management's confidence in sustained growth momentum [1] - The stock has returned 28.2% in the past 6 months, outperforming competitors and the broader market [7][9] - However, structural concerns exist that warrant a cautious investment approach, particularly regarding entry points in the evolving streaming landscape [1] Financial Performance - Netflix achieved an operating margin of 34.1% in Q2 2025, an improvement of nearly 7 percentage points year-over-year [2] - Management has warned of lower operating margins in the second half of 2025 due to increased content amortization and sales and marketing costs [2][3] - The company faces challenges in balancing growth investments with profitability targets amid rising content costs and marketing expenditures [3] Competitive Landscape - Netflix holds a 27% market share in the U.S. streaming market, closely followed by Amazon Prime Video at 26% [4][8] - Competitors like Disney+ and Apple TV+ are expanding their content libraries and leveraging unique ecosystem advantages, posing a threat to Netflix's market dominance [4][5] - Disney+ is aggressively expanding in international markets, while Amazon Prime Video benefits from its membership ecosystem [5][6] Valuation Concerns - Netflix's stock trades at a premium P/E ratio exceeding 40, raising valuation concerns despite impressive returns [8][13] - The premium valuation reflects market optimism about Netflix's advertising initiatives and password-sharing monetization, but execution risks remain substantial [14] - Current valuations may not adequately compensate investors for operational challenges and competitive threats, suggesting a cautious investment stance [17][18]