Netflix Tumbles After Q3 Earnings Miss. Is This Your Chance to Buy?

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Netflix (NASDAQ:NFLX) shares are tumbling almost 9% at the market open following yesterday’s third-quarter earnings report. Although revenue rose 17% year-over-year to $9.8 billion, meeting management’s guidance and Wall Street expectations, earnings of $5.87 per share missed consensus estimates of $5.95 due to a one-time $360 million charge tied to a Brazilian tax dispute. 

Management emphasized the hit was non-recurring and should not affect long-term performance. The company also said it will no longer meet its full-year operating margin target of 30%, though it remains on track for strong profitability growth. 

Ad revenue — now a core growth driver — hit record levels and remains on pace to double for 2025, despite Netflix not disclosing specific figures. During the conference call, one analyst interpreted management’s comments as hinting at another potential doubling of ad revenue in 2026, though executives declined to confirm and said they will provide more detail in Q4. However, executives reiterated confidence in the ad business trajectory. 

With the miss labeled as a one-off, is this dip a buying opportunity? Has the market overreacted, handing investors a chance to own a high-growth stock at a discount?

No Room for Error

Netflix entered earnings season trading at 52x forward earnings — a premium valuation that demanded flawless execution. Any stumble was bound to trigger a sharp reaction, and that’s exactly what happened. 

The stock had hit an all-time high of $1341 per share in late September, but has been range-bound between $1,150 to $1,200 since summer. With shares breaking through a psychological support level of $1,150 per share, NFLX stock could sell off even more. 

At its lofty multiple, Netflix is priced like a hypergrowth tech name, not a mature content platform. Subscriber growth has plateaued in developed markets, and competition from Disney (NYSE:DIS), Amazon (NASDAQ:AMZN), Warner Bros. Discovery (NASDAQ:WBD), and YouTube intensifies. Password-sharing crackdowns and price hikes have squeezed incremental gains, leaving ads as the primary growth lever. 

Yet as I noted ahead of the earnings report, ad revenue is a double-edged sword. It drives top-line expansion but risks degrading the user experience — the very thing that made Netflix a category killer.

Ads: Growth Engine or Long-Term Risk?

Netflix’s ad tier now has over 94 million monthly active users, up from 70 million six months ago. Engagement in the U.S. averages 41 hours per month — comparable to linear TV. The company has fully internalized its ad tech stack, enabling precise targeting and format innovation. Pause ads are in testing, with potential global rollout by year-end.

But scaling ad load to sustain triple-digit growth invites peril. More interruptions erode the seamless binge-watching experience that defined Netflix. Amazon Prime faced backlash after introducing ads in 2024, and YouTube’s unskippable ad barrages have driven users to ad blockers. If Netflix follows suit, churn could rise — especially as tier prices approach $20 with ads included.

Moreover, comps get tougher. Early triple-digit ad gains came against tiny bases. Sustaining 75%+ growth requires aggressive ad load increases, which hits diminishing returns as viewers push back. Seaport Research estimates that the company will earn $3.1 billion in ad revenue this year, but at some point, growth will normalize to 40 to 50% — respectable, but not enough to mask slowing core subscription momentum.

The Valuation Reckoning Ahead

Netflix isn’t collapsing, but it can’t sustain its current trajectory indefinitely. The market has priced in perpetual high growth, but reality is setting in: mature markets, rising content costs, and ad-driven volatility. The Brazilian tax hit was one-off, but it exposed how little margin for error remains at 50x earnings.

A re-rating is likely — not necessarily this quarter, but over the next 12 to 24 months. As ad growth moderates and subscriber adds slow, the multiple will compress. Investors chasing the dip today may face better entry points later.

Key Takeaway

NFLX stock isn’t a screaming buy at $1,135 per share. The earnings miss was one-time, but the underlying growth story is maturing. Ad revenue will keep expanding, but not at triple-digit rates forever. The stock can’t maintain 50x earnings on slowing organic growth and rising ad dependency. A lower revaluation is coming — patience will reward those who wait. I recommend not rushing in as a better price is likely ahead.

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