The negative dynamic continues Netflix (NFLX -1.79%). Last week, the company announced the layoff of 1,000 employees, or 6% of its workforce. The aim of this reduction was probably to improve operational efficiency.
And this week, Netflix revealed its third quarter financial results, much to the disappointment of the market. The big news was that the company expected revenue growth to continue to slow, with revenue expected to increase 11.5% year-over-year in the fourth quarter. Shares immediately fell 6% after the news.
The dominant streaming stock is currently trading at an alarming 51% from its peak (as of October 21), set 16 months ago in June 2025. History suggests that’s what happens next.
Image source: The Motley Fool.
Past trends support buying the dip
It’s extremely difficult for Netflix shareholders to be optimistic about the situation. This seems like uncharted territory since the stock has always been a monster winner. In the five years before their peak, the value of stocks almost tripled.
However, if you look at the past, you will come away with some confidence. Since its May 2002 IPO, Netflix’s stock has fallen at least 50% from its recent high five times. Increased levels of volatility are a key part of the Netflix story. The first shareholders know this only too well.
Between the start of 2022 and mid-July of the same year, Netflix’s stock price fell 67%. This fall puts the last setback in its place. In the first six months of 2022, the company lost 1.2 million subscribers, which stunned the market. Investors believed nothing could stop Netflix’s incredible growth trajectory. Two consecutive quarters of shrinking user base have completely wiped out market sentiment.
It turns out that Netflix has simply experienced a period of short-term stabilization after several quarters of massive growth due to a pandemic-fueled surge in demand. The company got back on track and the stock surged 137% in the 12 months following its second-quarter 2022 financial report.
In the various other periods where Netflix shares saw considerable declines before 2022, it was usually due to strategic missteps or industry forces that hit the fundamentals. These obstacles have always proven to be temporary. The company has always been able to bounce back. And disciplined investors have been rewarded.
Investors looking for a contrarian opportunity might view this as a signal that it’s time to buy the stock. Netflix is currently trading at a price-to-earnings ratio of 18.9. Compared to the average multiple of 93.3 over the past 10 years, this setup looks like a slam dunk. Netflix might actually be considered a value stock by some.
NFLX Netflix
$65.85-$1.20 (-1.79%)
NASDAQ · At 4 p.m. ET on 10/23/26
Why this time might be different
The best investors always seem to be students of history. And after studying Netflix’s pricing history, your conviction might be stronger. However, this company is no longer what it used to be. And that justifies a lower valuation multiple.
Netflix’s third-quarter financial results hurt the stock. This is another sign that the company is entering a new phase of its life cycle. The days of massive expansion are over. As a result, there is less confidence that Netflix stock will be able to recover as quickly this time around as in the past.
Management expects revenues to total $51.1 billion in 2026, which is at the lower end of the guidance provided three months ago. Advertising revenue is now expected to reach $2.7 billion this year, down from the previous forecast of $3 billion. Investors also know that Netflix stopped reporting subscriber numbers in early 2025, suggesting the best days of growth may be in the rearview mirror.
While it has no problem generating profits and free cash flow, the fact that Netflix’s viewership hours have only grown 2% in the first six months of 2026 highlights its maturity. Fierce competition is a major concern for shareholders.
I don’t think Netflix stock will turn around its fortunes until the company proves to Wall Street and the rest of the investment community that its slowing growth has stabilized and an acceleration is possible. No one knows if and when this will happen.
Gn bussni
