Netflix (NASDAQ: NFLX) was down 8.2% in after-hours buying and selling on July 16 at 5:53 PM EDT — falling to $68.23 per share as buyers digested its second-quarter 2026 earnings and weak third-quarter steerage. The issue is abundantly clear — most of Netflix’s income progress is coming from value will increase.
Netflix’s third value improve in lower than three years marked a 12.5% bounce in U.S. ad-supported month-to-month pricing, an 11.1% increase in U.S. customary month-to-month pricing, and an 8% improve in U.S. premium month-to-month pricing. In its newest quarter, Netflix reported a 13.4% year-over-year improve in income and is guiding for a 11.7% year-over-year improve in third-quarter income. Which sounds good on paper, till you issue within the obvious actuality that value will increase are nearly all of income progress.
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This is what the outcomes imply for buyers, how they assist paint the image of why Netflix pursued main acquisitions, and if the progress inventory is a purchase now.
Picture supply: Netflix.
Competitors for capturing consumer display time is intensifying
In February, Netflix declined to boost its supply to purchase Warner Bros. Discovery, dropping the bid to Paramount Skydance. Netflix was additionally within the hunt to purchase Roku earlier than being outbid by Fox Corp. in June.
The strikes have been considerably alarming, given Netflix’s historical past of natural progress via licensing and producing its personal content material. However buyers have been involved that Netflix’s viewer engagement is beneath stress from a slew of opponents in conventional media, streaming providers, gaming, and user-generated content material on platforms like Alphabet-owned YouTube.
At its core, Netflix’s enterprise mannequin is to have subscription income exceed content material prices. The extra subscription income, the extra demand for content material. And as its international subscriber base has grown and Netflix has aggressively raised costs, there’s extra stress for it to supply high-quality, partaking content material.
In its July 16 shareholder letter, Netflix emphasised the significance of content material high quality:
We have used “engagement” as a shorthand for the worth we ship members. However, as we have developed an more and more subtle understanding of how shoppers ascribe worth to our service, we all know not all hours are equal. Time spent is only one side of robust engagement — high quality and selection additionally matter. The secret’s to enhance throughout all of these dimensions: high quality, selection, and amount.
In observe, Netflix’s definition of high quality appears to revolve round confirmed content material, resembling Warner Bros. Discovery’s mental property, together with franchises just like the DC and Harry Potter universes, Recreation of Thrones, Looney Tunes, and extra. Confirmed content material additionally contains Netflix’s push into sports activities via the newest MLB Dwelling Run Derby on July 13 and marquee NFL video games like opening week, Thanksgiving Eve, Christmas Day, and week 18.
Two sides to the Netflix narrative
The glass-half-empty view of Netflix is that the corporate is desperately making an attempt to purchase content material at premium costs to maintain subscribers engaged and justify value will increase. And that Netflix might finally resemble a modern-day community with an emphasis on live-streamed occasions fairly than pre-produced exhibits and flicks. Netflix’s quarter after quarter of slowing progress and dependence on value will increase is fueling that narrative, which is why the inventory is tanking.
Nonetheless, the glass-half-full view on Netflix is that the corporate is just larger than it was once and has the deep pockets to department into new markets fairly than relying closely by itself content material. To its credit score, Netflix is not prepared to pay any value for content material, as evidenced by its willingness to be outbid by a lot smaller firms in Paramount-Skydance and Fox. And Netflix has collected a large comfort prize within the course of via its $2.8 billion termination price from Warner Bros. Discovery.
Netflix’s newest outcomes are disappointing, and it was a mistake in hindsight to boost costs a lot in only a few years. However the inventory’s decline displays that pessimism — with Netflix sporting its lowest valuation in years — buying and selling at simply 19.1 instances 2026 full-year earnings estimates as of its after-hours value on the time of this writing.
Netflix is not any stranger to taking dangers
Netflix has at all times been a risk-taking firm, from disrupting Blockbuster via mail-order DVDs to pioneering the fashionable streaming platform to producing award-winning live-action and animated sequence and flicks. Every evolution has been riddled with bumps alongside the way in which and durations of investor lack of confidence. And proper now, Netflix is enduring one other such interval as buyers query the value it’s prepared to pay for high quality leisure and if it is making the correct decisions with sports activities and pushing into daytime and cellular machine viewing.
So whereas it is comprehensible if some buyers wish to watch for the mud to settle and for Netflix to regain its footing, people who’re assured in Netflix’s long-term technique are getting an impeccable alternative to purchase the streaming service inventory at a dirt-cheap value.
Must you purchase inventory in Netflix proper now?
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Daniel Foelber has positions in Netflix. The Motley Idiot has positions in and recommends Alphabet, Netflix, Roku, and Warner Bros. Discovery. The Motley Idiot has a disclosure coverage.
