Netflix shares have dropped about 38% from their 52-week high, even though the company's revenue and profit both kept growing last quarter. Investors are no longer questioning whether Netflix's business works — they're asking how much growth is realistically left at its current scale.
Revenue keeps rising while the stock keeps falling
Netflix shares now trade far below their highs, but the company generated $12.6 billion in revenue last quarter, up 13% year over year. Operating income increased 11% over the same period.
That gap between a falling stock and a growing business comes down to expectations, not performance. Netflix built its premium valuation on years of rapid subscriber growth. But the company already serves more than 300 million subscribers, and adding meaningfully to that base gets harder as the audience grows larger. Investors have shifted from asking whether Netflix is growing to asking how much growth is realistically left.
Engagement holds up despite Olympics and World Cup competition
Netflix members watched more than 97 billion hours in the first half of 2026, up 2% from the same period last year, despite competition from events including the Winter Olympics and the World Cup. Management also expects operating income to grow more than 20% in 2026, with the operating margin reaching 31.5%, up from 29.5% in 2025.
Advertising becomes a bigger piece of the story
Management expects advertising revenue to roughly double in 2026 to about $3 billion. That would still represent only a small portion of Netflix's overall revenue, but the company is expanding its advertising technology and opening more inventory to programmatic buyers. As a result, Netflix no longer needs to rely entirely on adding subscribers — it can also raise prices, grow advertising revenue, and improve margins to keep earnings climbing.
If Netflix sustains double-digit revenue growth, expands margins, and turns advertising into a meaningful profit engine, the sell-off could end up looking like a valuation reset rather than a sign of a broken business. But if growth slows and advertising falls short, the market's caution may prove justified.
Source: The Motley Fool
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