Netflix Inc. (NASDAQ:NFLX) is a classic case of a strong disconnect between operating performance and share price movement. The stock has been marked down sharply by the market despite underlying growth and healthy margins. With the competitive landscape intensifying for Netflix, the stock is down 28.48% so far in 2026. It closed at $67.06 on October 2, bringing the company’s market capitalization to $297.14 billion. As Netflix faces increasing competition for subscribers and screen time, investors may be wondering whether Netflix or Spotify has the stronger subscription moat?
Competition Intensifies. Should Investors Worry?
Netflix has penetrated less than 45% of its approximately 800 million addressable households worldwide. In fact, YouTube is now being perceived as a platform offering more than just the short videos, as creator-led programming increasingly competes for screen time. Netflix has responded by expanding partnerships with digital creators. However, the core business performance is not as bad as such competitive trends and the stock’s bearish trend indicate.
Taking a bird’s-eye view, one can see that the business is still healthy. The company has delivered a $48.37 billion topline over the last 12 months, including a 13.35% topline growth during the second quarter compared to the corresponding period last year. This double-digit revenue growth suggests that the demand still remains intact. Explore more details around whether Netflix is capable of expanding its viewership, with platforms like YouTube competing for the same screen time.
Growing YouTube Threat, but Numbers Tell a Stronger Story
The first half of 2026 saw record viewership for Netflix, with more than 97 billion hours watched. Popular sequels as well as many of the new web series drew a lot of attention from the audience. Series such as His & Hers generated 104 million views, while Bridgerton Season 4 attracted 100 million during the first half, while others like I will Find You, Run Away, and Stranger Things (Season 5) delivered in excess of 50 million.
Profitability metrics offer visible strength. Netflix reported a trailing operating margin of approximately 29.7% and a net margin of approximately 28.2%. This has resulted in an impressive return on equity of 49.54%, which is something not many media or entertainment companies can match. Ongoing expansion of this high-performance analog and mixed-signal semiconductors solutions provider into high-growth connectivity markets, is something investors should not ignore.
Modest Multiples for a High-Margin Growth Business
Valuation multiples make the story more interesting for Netflix. The stock currently trades at a trailing price-to-earnings ratio of 22.44x and a forward P/E multiple of 18.69x. However, reported earnings benefited from a one-time $2.8 billion termination fee associated with the abandoned Warner Bros. Discovery deal, meaning normalized earnings multiples would be higher. These reported multiples appear reasonable relative to Netflix’s growth, although the one-time termination fee makes normalized earnings valuation less attractive. A bearish trend despite such multiples indicates that maybe the market has overreacted to fears of content costs, competition, or slowing subscriber momentum.
The management continues to explore avenues where it can allocate capital more efficiently. It has already deployed generative AI tools across roughly 300 titles. This has resulted in quicker production and delivery of content, as well as significant cost savings for the business.
Institutional Sentiment
Data tracked by Insider Monkey covering more than 1,000 hedge funds reveals a significant amount of institutional interest in the stock. This is despite a drop in the number of hedge funds holding positions. As per 13F filings, hedge fund ownership declined from 144 funds in Q1 2026 to 121 funds in the following quarter.
BlackRock is the largest institutional stakeholder in the company, as per Yahoo Finance database, holding 348.77 million shares. This translates into 8.38% ownership in the company. Other notable stakeholders include Vanguard Capital Management and State Street with 6.60% and 4.33% ownerships, respectively.
What Lies Ahead
Short interest for the stock remains low, with a short float of 2.28% and a short ratio of 3.44. This indicates that investors are not placing too many bearish bets against Netflix. The share price decline can be attributed to broad selling or de-rating rather than aggressive shorting. For investors, a key consideration going forward is if the company will be in a position to sustain its current growth trajectory under such competitive viewership dynamics.
With players like YouTube expanding its own viewership in recent periods, delivering persistent and sustainable subscriber growth will remain challenging for Netflix in the foreseeable future. Netflix may offer upside following its sharp selloff, but its valuation looks less compelling after adjusting for one-time earnings. Sustained revenue growth and operating margins will be critical to determining whether the stock is genuinely undervalued.
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