Netflix Stock Is on Track for Its Worst Year Since 2022. Is It Finally a Buy?
I'm LongbridgeAI, I can summarize articles.Netflix stock faces its worst year since 2022, dropping ~27% to $65 after Q3 earnings. Despite the decline, profits surged: revenue rose 12% to $12.9B, operating income jumped 37%, and EPS increased 49%. The company executed record $4.8B in share buybacks. However, growth is cooling, with ad revenue forecasts lowered and U.S. market expansion slowing. Trading at a P/E of ~17, near the S&P 500 average, the author suggests considering a slow position build due to strong fundamentals despite decelerating growth.
Shares of Netflix (NFLX -5.31%) closed at around $69 on Oct. 20, down about 27% in 2026. If the year ended at that price, it'd be the stock's worst calendar year since 2022, when shares slid 51%.
And it got worse after the bell. Following the streaming giant's third-quarter results, the stock dropped about 6% in after-hours trading to around $65. That was under its lowest close of the year.
But the business behind the stock looks nothing like it did in 2022. Its profits are still rising fast, even as the stock price falls.
Image source: Netflix.
Profits are still climbing
In 2022, Netflix's trouble was the business itself. The company lost around 1 million paid memberships in the second quarter of that year alone, and revenue grew just 9% year over year in the period.
This year's different. Showing how profitable the streaming service has become, Netflix's third-quarter revenue rose 12% year over year to $12.9 billion, while its operating income jumped 37%. Its operating margin widened to 34.6%, up from 28.2% a year earlier. And earnings per share jumped 49% to $0.87.
Granted, these comparisons flatter the quarter a little. Last year, Netflix booked an expense of around $619 million linked to a dispute with Brazilian tax authorities, which weighed on its operating margin in the third quarter of 2025.
Leaving out that charge, Netflix's operating income would still have climbed about 15%, and its operating margin would still have widened by about a percentage point.
Netflix also spent $4.8 billion buying back 63.9 million shares in the third quarter, its biggest quarter for repurchases ever, and free cash flow rose about 8% to $2.9 billion.
Growth hasn't bottomed yet
The problem is that revenue growth is still cooling. Netflix sees fourth-quarter revenue of around $13.4 billion, up 12% year over year, which would put full-year revenue at $51.1 billion. If that outlook holds, growth will have slowed for four straight quarters since revenue rose around 18% in the fourth quarter of 2025.
Advertising is part of that. Management now expects around $2.7 billion of ad revenue for 2026, down from about $3 billion, because some new ad features are rolling out slower than planned.
Yet the ad business is still small. Even at the lower target, ad revenue would be just around 5% of Netflix's total for the year. And the $300 million gap is under 1% of the revenue the company now expects for 2026.
To me, the home market is the bigger worry. Revenue in the U.S. and Canada region, which was around 44% of the third quarter's total, climbed 11% year over year. Growth there rose a little from the second quarter -- though it was well below the 17% the region saw in the third quarter of 2025.
"The U.S. is also working. It's just not growing as fast as it could or as fast as we'd like," said co-CEO Ted Sarandos during the company's third-quarter earnings call.
After all, in a mature market like the U.S., advertising arguably needs to do more of the growing. So a slower ad rollout might matter more than $300 million makes it look.
Is the stock cheap enough now?
The slide has at least made the stock cheaper. Based on its Oct. 20 close and the average analyst estimate for 2027 earnings per share, Netflix's price-to-earnings ratio was around 18. The after-hours fall pushed it closer to 17.
NFLX - Netflix
NASDAQ · As of 4:00 PM ET 10/21/26
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For the S&P 500 (^GSPC +0.58%) overall, FactSet pegs the number at around 19, using earnings estimates for the next 12 months.
Put another way, Netflix now trades at roughly the same price-to-earnings ratio as the broader market. And that's for a business whose revenue is still climbing by double digits, with an operating margin of almost 35% last quarter.
So, is Netflix stock finally a buy? I think shares are worth considering at this price. Even after stripping out last year's tax charge, the company's operating income rose around 15% in the third quarter. And it's buying back its own stock at a record pace.
But the growth rate hasn't stopped dropping, and the ad business just slipped behind its own plan. That's why I'd consider building a position slowly. It may take a few more quarters to see where growth settles.