Netflix (NFLX) Drops Double Digits after Q1. Here Is Why the Bulls Should Not Panic

Netflix (NFLX) is down double digits after its Q1 results on April 16. However, the sell-off does not warrant panic, as the underlying business remains intact. The quarter was solid on both revenue and profit, with the market’s reaction seemingly driven by a softer near-term outlook tied to margin timing rather than demand weakness. Since these pressures appear temporary rather than structural, the long-term earnings story remains unchanged for this global streaming service company.

With that in mind, and given the more attractive valuation, I see this recent weakness as a compelling “buy-the-dip” opportunity and reiterate my bullish view on NFLX.

Netflix Faces Near-Term Pressure as Q2 Guidance Falls Short

Investors harshly punished Netflix after it reported its Q1 results. The reaction seems largely driven by unmet expectations, not for the quarter that just passed, but for what’s coming next. The company delivered earnings per share (EPS) of $1.23, beating the $0.76 consensus estimate. Revenue also came in at $12.25 billion, topping expectations by roughly 0.4%.

On the guidance front, the Q2 outlook came in somewhat softer. Netflix guided revenue at $12.58 billion, implying 13.5% year-over-year growth. That’s a step down from the last four consecutive quarters, where revenue grew in the mid‑ to high‑teens on a year-over-year basis.

The disappointment also shows up on margins, with operating margins expected to come in at 32.6% versus 34.1% in Q2 last year. To put into perspective just how high expectations were, even with margins compressing year-over-year, EPS is now projected at $0.78 for Q2 — roughly 6% below what the market was expecting pre-Q1. That being said, the 13.5% year-over-year revenue growth itself came in roughly in line with market projections.

The main reason cited by the management team for these weaker results — especially on the margin side — is growth in content amortization. Netflix doesn’t recognize content costs all at once; instead, it spreads them out over time as the content is consumed. Because of that, Q2 is expected to mark the peak in year-over-year growth for content amortization this year, with the trend easing into the second half of 2026.

A Possible Timing Issue, Not a Demand Problem

Most importantly, however, there doesn’t seem to be anything structurally wrong with demand. Netflix’s full-year 2026 guidance was quite bullish, with organic growth expected to come in between 12% and 14% year-over-year. That growth is being driven by ads doubling to around $3 billion, engagement holding at all-time highs, and still only about 45% penetration of the addressable market alongside just 5% of total TV time. This suggests a long runway for compounding.

Worth noting, consensus FY26 EPS has now been revised to about $3.5, implying roughly 42.5% year-over-year growth. That’s roughly 10%–15% higher than pre-Q1 estimates. This reinforces the idea that market pessimism is much more concentrated in the short term, Q2, rather than in the medium- to long-term.

In my view, this kind of market reaction points to a timing issue, or what you could call earnings deferral. In other words, Netflix’s earnings haven’t disappeared; they’ve just been pushed out over time.

A Valuation Reset Creating Asymmetric Upside

Since Netflix’s business model relies on content amortization, relatively low capex, and growing cash generation, traditional valuation lenses can be a bit misleading. Looking at valuation through operating profit (EBIT) tends to better capture the company’s true earnings power.

Netflix currently trades at 28.9x trailing EV/EBIT, a multiple below its five-year average of around 34.5x and still about 70% above the industry average. While less demanding after the recent sell-off, it’s not as compelling as it was back in February. At the time, discussions around the potential acquisition of Warner Bros. Discovery’s (WBD) assets pushed the multiple down to 24.4x at the lows, into what I would call deep-value territory.

That being said, the recent valuation reset puts Netflix roughly back to where it started the year.
While there have been some timing-related setbacks — namely, the Q1 earnings were more one‑off‑driven than investors had hoped, and the weaker Q2 guidance — I don’t see anything structurally broken in the thesis that would justify a negative re-rating of long-term expectations. If anything, the upward revisions to FY26 EPS support the opposite view.

The company is also signaling significant conviction in its own valuation: Netflix announced plans to buy back an additional $25 billion in stock, supplementing roughly $6.8 billion remaining from its prior board‑approved program. The new buyback has no expiration date and is framed as a response to the recent share‑price decline following the weaker‑than‑expected Q2 guidance.

That’s exactly why I see the recent pullback as an attractive entry point, with Netflix trading below its historical average due to timing noise, not demand deterioration.

Is NFLX a Buy, Hold, or Sell, According to Wall Street Analysts?

The consensus on Netflix among Wall Street analysts is a Strong Buy, with 29 out of 35 ratings recommending a Buy and only six at Hold. The average price target stands at $115.53, implying a 23.90% upside from current levels, with several analysts raising their targets following the Q1 earnings report.

A Better Entry Point on Temporary Pressure

The market applied the “to whom much is given, much is expected” principle to Netflix in Q1. The issue, in my view, is that the move feels like an overreaction, driven by expected Q2 margin headwinds rather than any real long-term concerns. I don’t see anything structurally wrong that would suggest Netflix’s trajectory as a compounder is in jeopardy. As a result, this now looks like a favorable risk-reward setup, with the stock trading below its historical operating income multiples — reinforcing my bullish stance.