Should You Buy Netflix Stock After Its 36% Plunge?

Core Insights - Netflix's streaming service has reached a record-high of 325 million subscribers, significantly outpacing competitors like Amazon Prime and Disney+ [1][3] - Despite this success, Netflix's stock price has decreased by 36% from its mid-2025 peak, raising concerns about the valuation of its maturing business and the impact of its planned $82 billion acquisition of Warner Bros. Discovery [2][9] Subscriber Growth and Competition - Netflix continues to lead the streaming market with 325 million paying subscribers, while Amazon Prime and Disney+ have 200 million and 131.6 million subscribers, respectively [3] - The company is innovating with new pricing structures, including a low-cost subscription tier at $7.99 per month, to attract a broader audience [4] Advertising Business Momentum - Netflix's advertising revenue has shown remarkable growth, doubling year-over-year in 2024 and exceeding $1.5 billion in 2025, although it still represents a small portion of the total revenue of $45.2 billion [6] - The advertising business is expected to continue growing, especially with the addition of premium content and live sports [5][14] Acquisition Plans - Netflix announced plans to acquire Warner Bros. Discovery, which holds valuable franchises and could significantly enhance its advertising business [8] - Regulatory concerns may arise regarding the competitive implications of this acquisition, as Warner is a major player in the streaming market [9] Financial Performance and Valuation - In 2025, Netflix reported earnings of $2.53 per share, resulting in a price-to-earnings (P/E) ratio of 33, which is comparable to the Nasdaq-100 average of 32.6 [10] - Wall Street estimates suggest earnings could grow to $3.12 per share in 2026, leading to a forward P/E of 26.6, indicating potential for stock appreciation [11][13] Future Outlook - Management anticipates the advertising business will double in size again this year, and Netflix is committed to outspending competitors on content to attract new subscribers [14] - The recent decline in stock price may present a buying opportunity for long-term investors, despite potential volatility related to the Warner Bros. acquisition [13][14]