What Has The Market Missed In Netflix Stock’s Drop

Stock buyers may be betting on a strategic shift at Netflix (NFLX). Management no longer spends whatever it takes on new shows, opting instead to let content spending grow more slowly than sales. Yet the market has not rewarded this discipline. The stock lost 41.4% over the past twelve months, while the S&P 500 returned 16.2%. So how much faster than its content bill are Netflix's sales growing?

Netflix Expects Sales To Outgrow Its Content Spending

Netflix intends to keep its content budget in check. During the fiscal Q2 2026 call, management said the company will grow content spending more slowly than revenue while continuing to invest in a large market. Executives used the same call to guide to sales growth of 13% to 14% for the full year, and they expect content expense to rise about 10% in 2026.

This discipline typically materializes in the margins. Netflix has widened its margin, though almost all of the gain came by June 2025. Its operating margin was 23.8% over the twelve months to June 2024, expanding to 29.5% over the twelve months to June 2025. The metric reached 29.7% over the twelve months to June 2026. That is about twice Disney's 15.2% over its own latest twelve months.

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Netflix Forecasts Slower Sales Growth Ahead

The company guided to 12% revenue growth for fiscal Q3 2026, a step down from the 13.4% recorded in fiscal Q2 2026. On July 16, 2026, Reuters reported that this forecast fell short of Wall Street targets and that Netflix would disclose less about viewing hours.

The stock now trades at 21.6 times its earnings over the past twelve months, trailing the S&P 500's 22.9. At the end of June 2026, Netflix's P/E was lower than at all but two of the 28 earlier quarter ends with a P/E reading in our data since fiscal Q4 2018.

Constraining the content budget will not accelerate top-line growth, leaving investor concerns about sales open. Netflix's operating profit has grown slightly faster than its sales, however. Operating profit rose to $14.4 billion over the twelve months to June 2026, up from $12.3 billion a year earlier, representing growth of about 17%. Revenue grew 16.0% over the same twelve months.

What Would Show Netflix Spending Too Much On Content?

If the content bill expanded as rapidly as sales, it would signal a potential overspend. Live events currently draw a disproportionate amount of spending relative to viewing time. Management expects live programming to take 5% of its 2026 content budget but capture only 1% of view hours. Management also noted that six of the top ten new member sign-up days over the past five years came from live events.

Netflix has navigated slower growth in the past, and its margin compressed during those periods. Over the twelve months to June 2023, revenue grew only 3.5%. The company's operating margin fell to 17.5% over those twelve months, down from 22.0% two years earlier. In the 2022 inflation shock, Netflix stock fell as much as 72% from January 3 to October 28, 2022, against 24% for the SPDR S&P 500 ETF.

Netflix has guided its content bill to grow slower than its sales in 2026. The company's fiscal Q3 2026 report, expected on October 20, 2026, will show how fast content spending grew against sales.

Is Too Much Of Your Wealth Riding On One Stock?

A stock like Netflix can look very different depending on which part of the business you watch. When one position grows into a large part of your wealth, a sharp fall can hurt your whole plan, and selling to spread the money out can bring a large tax bill. Glenn Caldicott, CIO of our Boston-based partner firm Empirical Asset Management, an SEC-registered investment adviser, offers a free 15-minute strategy review of ways to protect a concentrated position and unwind it with less tax.

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