Netflix (NFLX) Plunges to 52-Week Low...Wall Street Rates 'Buy'

▲ Netflix (NFLX) stock decline/AI generated image

Netflix (NFLX) stock has fallen to the brink of its 52-week low, testing the judgment of growth stock investors. While the stock has plummeted, the outlook for free cash flow and the expansion of its advertising business have actually improved, leading to analyses suggesting that the market's sell-off has outpaced fundamentals.

According to 24/7 Wall Street on July 1 (local time), Netflix traded at $73.78, leaving it just about $3 shy of its 52-week low of $70.86. The stock has fallen 21.31% this year and is down 44.24% from its peak. This is a stark contrast to the S&P 500 Index (SPX), which gained 8.66% during the same period.

Despite the stock decline, business indicators are still considered robust. Netflix has secured over 325 million paid subscribers worldwide. The company raised its 2026 free cash flow forecast from the previous $11 billion to $12.5 billion. Operating profit margin is also expected to rise to around 31.5%. The price-to-earnings ratio is 24x based on recent earnings and 23x based on future earnings.

The advertising business has also emerged as a growth driver. Ad-supported plans accounted for over 60% of new subscribers in the first quarter based on the ad sales market. The number of advertisers increased by 70% year-over-year, exceeding 4,000. 24/7 Wall Street estimated that advertising revenue is expanding towards $3 billion by 2026. The company repurchased 13.5 million shares for $1.3 billion in the first quarter, with $6.8 billion remaining in its share repurchase authorization.

The reasons for the bearish sentiment are also clear. Netflix's first-quarter diluted EPS was $1.23, missing estimates by 8.55%. The reported net income of $5.28 billion included a $2.8 billion termination fee related to the canceled acquisition of Warner Bros. It is pointed out that excluding this effect, the pace of earnings improvement is not as strong as it appears. Competition for viewing time and advertising spending with Disney, Amazon, Apple, YouTube, and TikTok is also a burden.

Wall Street's assessment still leans towards "buy." Among 50 analysts, 37 gave a "buy" or "strong buy" rating, with no "sell" ratings. The consensus price target is $114.15. If the operating profit margin remains within the 32-36% range in the next earnings report, a stock revaluation is possible. However, if it falls below 30% or the 2026 free cash flow forecast is lowered, the pressure to break the 52-week low could increase.

[Article Key Summary]

-Netflix stock is at $73.78, close to its 52-week low of $70.86, and has fallen 21.31% this year.

-Netflix raised its 2026 free cash flow forecast to $12.5 billion, and its advertising business and share repurchases also support the growth narrative.

-First-quarter diluted EPS missed estimates by 8.55%, and the $2.8 billion Warner Bros. termination fee boosting net income remains a concern.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*