Netflix (NFLX) Stock Price Sinks As Q3 Earnings Meet Softer Outlook

Netflix stock took a hit today. The share price closed at US$65.04, down 5.3% from the prior session, even though the company just posted another quarter of hefty profits.

For Q3 2026, Netflix reported basic earnings per share of US$0.89 on revenue of US$12.87b, feeding into a trailing net profit margin of 29.7%. Short term traders focused on the price drop. Long term holders are more likely to be weighing those fat margins and an 18.3x trailing P/E against the potential path of streaming growth in the years ahead.

Love Netflix’s rich profit margin but uneasy about paying 18.3x trailing earnings after a 5.3% price drop? Check out our screener of stronger balance sheet compounders in the list of solid balance sheet and fundamentals stocks (25 results).

Q3 2026 Earnings Summary

• Revenue (Q3 2026 vs Q3 2025): US$12,874.2m vs. US$11,510.3m (up about 11.8%)
• Net Income (Excl. Extra Items, Q3 2026 vs Q3 2025): US$3,663.9m vs. US$2,546.9m (up about 43.9%)
• Basic EPS (Q3 2026 vs Q3 2025): US$0.89 vs. US$0.60 (up about 47.7%)
• Trailing 12-Month Net Profit Margin (Q3 2026 vs Q3 2025): 29.7% vs. 24.0% (margin widened by about 5.7 percentage points)

Earnings tell one story, but investors who care about what a business is really worth usually pay closer attention to the cash flowing through it over time. Netflix produces meaningful cash, and based on those cash flows alone the stock could be a solid 22% undervalued.

Netflix’s Growth Engines: Progress, But Targets Still Stretch

The bullish case hangs on Netflix’s newer levers carrying more of the load.

"The main thing that has to go right is that newer growth engines like the ad tier, live events, and cloud gaming continue to draw viewers and advertisers in enough volume to support the guided 12% to 14% revenue growth and 31.5% operating margin for 2026."

Q3 showed meaningful margin strength and healthy churn, so profitability is holding up. Ads grew more than 80% year to date, live sports rights are expanding and gaming tie ins are ramping. Even so, Netflix cut its 2026 ad revenue goal and guided softer Q4 earnings, which makes the full 12% to 14% growth and 31.5% margin ambition harder, not easier, to reach.

One Narrative disagrees with today's price. → See where this Narrative says Netflix should trade.

Netflix bear case: engagement strain meets softer ad ramp

Concern around Netflix is that weaker viewing and rising spend collide over time.

"Bearish analysts expect Netflix's rising content investments, tighter regulatory scrutiny on its ad business, and slowing average viewing time to pressure long-term margins and earnings, despite management's current profitability targets."

Q3 margins and EPS beat show no immediate earnings squeeze, yet several milestones lean the bear way. Average daily viewing hours per subscriber fell about 8% earlier in 2024 and U.S. TV share is at multi year lows. Management also cut 2026 ad revenue goals and guided softer Q4 earnings. That mix suggests engagement and ad monetization are not yet pulling their full weight against a large content and compliance bill.

Hunt For Quiet Price Dislocations

Netflix just reminded investors that a big earnings swing can coincide with a sharp price move in the same week. The real opportunity is finding stocks that could be undervalued before the market corrects them.

• Company 1 - 45% below our estimate - expand large-format digital displays into transportation, youth sports, and smart-city projects as software and services deepen the offering.
• Company 2 - 28% below our estimate - anchor critical chips and enterprise software where data traffic, connectivity, and security requirements keep rising across hyperscalers and corporate infrastructure.
• Company 3 - 24% below our estimate - push coconut-based drinks deeper into mainstream shelves as private-label partnerships and international distribution scale alongside higher input and freight costs.

Those are three of them. See the full list of 33 companies trading below our fair value estimates →

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