Netflix (NFLX) Stock Drops 8% Premarket Despite Earnings Beat
Netflix (NASDAQ: NFLX) shares are off more than 8% in premarket trading on July 17, positioning the streaming service to endure...
Quick overview
- Netflix shares fell over 8% in premarket trading following disappointing third-quarter guidance, despite strong second-quarter results.
- The company reported a revenue increase of 13.4% year-over-year, with net income reaching $3.40 billion, but guidance slightly missed Wall Street expectations.
- Investors are particularly focused on Netflix's advertising revenue potential, which is expected to grow significantly in the coming years.
- The stock is currently trading below key support levels, raising concerns about its future performance and growth sustainability.
Netflix (NASDAQ: NFLX) shares are off more than 8% in premarket trading on July 17, positioning the streaming service to endure one of its biggest one-day declines of 2026. The sell-off followed Netflix’s third-quarter guidance, which barely lagged behind Wall Street’s predictions and was overshadowed by the latest quarter’s double-digit top-line growth, rising margins, and solid cash flow. The market’s reaction underscored investor expectations of late. The fact that Netflix was punished for not beating a certain earnings bar shows that it no longer needs to do just that, but rather demonstrate that a future of advertising, live events, and engagement can support the stock’s elevated price tag.
Netflix Delivers Another Strong Quarter
Netflix announced second-quarter revenue of $12.56 billion, up 13.4% from a year earlier, with net income reaching $3.40 billion. Diluted earnings came in at $0.80 per share, modestly surpassing its guidance, while operating income grew to $4.19 billion. Operating margins stood at 33.4%, beating management expectations of 32.6% but trailing the 34.1% reported in the second quarter of 2024.
The company posted strong growth in all regions. The U.S. and Canada region revenue grew to $5.43 billion, while Europe, the Middle East and Africa contributed $4.03 billion. Latin America and Asia-Pacific also saw double-digit growth, a strong sign of the company’s international success.
Why Is Netflix Stock Falling?
It wasn’t the just-completed quarter that hurt Netflix stock. Rather, investors were worried about the company’s guidance for the third quarter. Management forecast revenue of $12.86 billion, operating income of $4.27 billion, and earnings of $0.82 per share. While these numbers reflect healthy expansion, they were just a touch behind Wall Street estimates.
Analysts were expecting revenue closer to $13 billion and earnings around $0.84 per share. The streaming service also trimmed its full-year revenue forecast to $51.0 billion to $51.4 billion, previously predicting $50.7 billion to $51.7 billion. Guidance wasn’t bad, but for a stock currently valued near record highs, it wasn’t great enough.
Advertising Is Growing, but Investors Want More
Ad revenue is Netflix’s largest potential growth lever going forward. Management expects advertising revenue to be roughly $3 billion in 2026, almost double what it was last year. The ad-supported tier of service is bringing in new customers, while providing an additional source of income above subscriptions. Netflix is also investing heavily in AI tools, optimization of ad campaigns, and live programming to boost interest in ads. While advertising is currently a relatively minor fraction of total revenue, investors are looking for signs that it could grow into a major component of earnings in the future as subscription growth declines.
Engagement Is Becoming the Key Metric
Engagement is becoming the most important metric. In the first six months of 2026, total hours viewed reached 97 billion, which represents a 2% increase compared to the same period a year earlier. Though engagement is growing, the trend is slow, and that’s meaningful given that streaming hours power most of Netflix’s revenue sources, from ads to pricing power and churn reduction.
To keep the numbers climbing, Netflix is ramping up investments in sports, creator content, video podcasts and cloud gaming, including live programming, which currently represents a small percentage of viewing hours but slightly more than 5% of content spending. Those initiatives are a clear attempt to compete with other types of digital entertainment, such as YouTube, TikTok and other online platforms.
Even so, the market has focused almost exclusively on growth expectations and has mostly overlooked share buybacks. Netflix continues to be among the media industry’s best cash-flow generators, with $1.53 billion of FCF during the second quarter. The company also confirmed its full-year FCF outlook for $12.5 billion.
The stock also repurchased $4.7 billion worth of its shares during the quarter for its biggest ever buyback in a single quarter and has $27.1 billion left to spend under the current buyback authorization.
Netflix Stock Forecast: $64 as the Next Support Area?
Netflix breached its long-term upward trend line and the key $71.35 support area, signaling a continued negative bias. The stock is now trading at $65.77 with the first area of support to watch is the $64.29 level. A break below this level could push shares to $62.37 and $59.92 on the downside.
On the flip side, shares have met resistance around $66.99 and $69.44 and could struggle above these levels. A breach above $71.35 could flip it from a support area to a resistance area. The relative strength index is now hovering around 23 and points to the possibility of oversold market conditions in the short term. Unless shares reclaim the $69.44-$71.35 range, though, NFLX remains in a downtrend.
Netflix Outlook
The outlook remains very strong for Netflix. Its revenue is growing by double digits with operating margin above 30%. It continues to expand its advertising business and is able to fund large buybacks from FCF. The question now becomes how it can sustain its growth. Wall Street is looking for growth in the streaming business to pick up, especially from the ads, but also engagement and pricing power.
As long as the streaming business doesn’t show more growth, analysts will likely continue to sell the stock on weak guidance, despite Netflix’s strong performance. The question is if the $64 support can hold this time, coming on the heels of another of this year’s biggest selloffs after earnings.
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