Key Points
Netflix’s revenue growth decelerated in its most recently reported quarter.
Management expects the top-line slowdown to worsen in Q2.
The stock’s premium valuation leaves little room for error as competition in the streaming space intensifies.
- 10 stocks we like better than Netflix ›
Shares of streaming pioneer Netflix (NASDAQ: NFLX) sank in after-hours trading on Thursday, falling to about $98 after the company released its first-quarter earnings report.
While the business is still expanding, the market’s negative reaction makes sense. A closer look at the results and management’s outlook reveals a company that is undeniably maturing.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Of course, Netflix‘s business isn’t doing poorly. On the contrary, it’s thriving. But in the context of the stock’s high valuation, there are some things to be concerned about. In fact, I’d argue that a case can be made for the stock falling as much as 30% more from here.
Image source: Netflix.
Decelerating growth
There were certainly some positives in Netflix’s latest update. The company’s first-quarter revenue reached $12.3 billion — up 16.2% from about $10.5 billion in the year-ago quarter. Even better, profitability surged, with earnings per share jumping to $1.23 from $0.66 in the year-ago period.
But the company’s top-line momentum is cooling.
Netflix’s 16.2% revenue growth rate in the first quarter of 2026 actually represents a deceleration from the 17.6% growth rate Netflix posted in the fourth quarter of 2025.
And where things get more complicated is the company’s near-term outlook. Management’s guidance for the second quarter implies a further step down in momentum, with the company forecasting year-over-year revenue growth of just 13.5%. Worse yet, the midpoint of management’s full-year revenue guidance calls for even slower growth.
The company reiterated its guidance for full-year top-line growth of 12% to 14%, or 11% to 13% when adjusted for foreign exchange.
For a stock with a very high valuation, this clear deceleration is arguably a cause for concern.
A valuation that demands perfection
Even after the recent after-hours slide to $98, the stock looks pricey. The stock currently trades at about 32 times earnings — and that’s with the company’s first-quarter earnings surge already factored into the denominator.
A valuation like that arguably prices in years of robust, uninterrupted double-digit top- and bottom-line growth. In other words, it assumes Netflix will comfortably maintain its dominant position without sacrificing its profit margins to fend off rivals.
But that is a risky bet in today’s fiercely competitive streaming landscape. Well-capitalized technology giants are aggressively pushing into live sports and premium content to build their own subscriber bases. Apple, for instance, recently secured a major exclusive streaming partnership with Formula 1. And this is on top of Apple offering Apple TV as part of bundles with other Apple services or even with rival streaming service Peacock.
As deep-pocketed competitors increasingly bid up the price of must-have content, Netflix’s ability to simultaneously grow its subscriber base and expand its margins could be tested.
Even Netflix called out the intensely competitive environment in its first-quarter update.
“The entertainment business remains extraordinarily dynamic and competitive,” management said.
Ultimately, I believe the company’s decelerating growth is a natural consequence of a maturing business operating in a crowded market.
Wait for a better entry point
Overall, Netflix’s business remains exceptional. But the stock simply does not offer a sufficient margin of safety at its current price.
In fact, it wouldn’t be out of the question for shares to fall significantly from here if top-line growth slowed to the low double-digits. Think about it: If Netflix’s price-to-earnings ratio were to contract to a more reasonable multiple of around 22 — a figure that better reflects its maturing profile — the stock would trade closer to $68. That implies a downside of roughly 30% from the $98 after-hours price.
Yes, this may be somewhat of a worst-case scenario, but it provides useful context. Given the valuation risk inherent in the stock’s high multiple today, I don’t mind staying on the sidelines for now and waiting for a more attractive entry point.
Sure, it’s possible that Netflix’s growth reaccelerates in the near term back to high-teens year-over-year growth rates. But even if that happens, it doesn’t eliminate the long-term risk of growth slowing to low double-digit rates or even single-digit rates. And since the market is forward-looking, it’s possible it prices in a maturation like this at the first signs, rather than after it’s in full swing.
This bearish exercise isn’t necessarily a call to sell Netflix stock. I wouldn’t rule out the possibility that the company will grow at impressive rates for much longer than investors expect, eventually justifying the stock’s current price. This exercise, rather, is to remind investors that price matters, so exercise caution.
Should you buy stock in Netflix right now?
Before you buy stock in Netflix, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netflix wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $580,872!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,219,180!*
Now, it’s worth noting Stock Advisor’s total average return is 1,016% — a market-crushing outperformance compared to 197% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of April 16, 2026.
Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Apple and Netflix and is short shares of Apple. The Motley Fool has a disclosure policy.
