Netflix (NFLX) stock is down more than 26% year to date, putting it on pace for its worst annual performance since 2022. The stock dropped 7–8% on July 17 after the company posted Q2 results that narrowly missed revenue expectations.
Revenue came in at $12.56 billion, just $22.6 million short of the $12.58 billion Wall Street expected. The miss was small, but the reaction was not.
Q3 guidance added to the pressure. Netflix guided for $12.86 billion in third-quarter revenue, falling short of analyst forecasts of $12.99 billion. Full-year revenue guidance was narrowed to $51 billion to $51.4 billion, representing 13–14% growth over 2025.
The stock had already fallen around 25% for the year before the earnings report, as investors weighed questions around engagement trends and competition from short-form video platforms.
A separate issue rattled investors: Netflix said it will publish its “What We Watched” engagement report annually from 2027, down from twice a year. The company said the shift is intended to “keep the focus on our primary financial metrics — revenue and operating profit.”
Morningstar analyst Matthew Dolgin said the move could fuel existing fears. “The prevailing narrative is that Netflix’s business is deteriorating. Management’s decision to pull back on its engagement report should only encourage this thinking.”
MoffettNathanson analyst Robert Fishman also flagged concerns about the link between engagement and revenue, noting a “negative narrative that if viewing hours are set to decline, then revenue and profits must quickly follow.”
Netflix’s US streaming market share declined to 17% from 21% over the two-year period to March 2026, according to Nielsen data.
Despite the selloff, the underlying metrics are not falling apart. Viewing hours grew 2% in the first half of 2026, a slight uptick from the 1.5% increase seen in 2025. That growth came while Netflix competed for attention against the Winter Olympics and the FIFA World Cup.
Advertising revenue is on track to hit $3 billion this year, doubling 2025’s total. The company is seeing strong advertiser interest in live sports content.
Operating margin reached 33.4% in Q2. Netflix expects a 31.5% margin for the full year, with operating income growing more than 20% year over year.
Free cash flow is expected to reach $12.5 billion this year. The stock now trades at roughly 25 times free cash flow, down from 27 before the quarter.
Co-CEO Greg Peters pushed back on the idea that viewing hours directly drive revenue. “There is not a linear relationship between viewers and revenue and profit, because all hours are not created equal,” he said on the earnings call.
Morningstar maintained its $80 fair value estimate and noted the stock is now trading below 20 times expected 2026 earnings.
Analysts are still modeling earnings growth at an annualized rate of over 20% over the next several years.
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