Netflix Stock Has Fallen On Slowing Sales While Margin And Buybacks Compound Earnings

Netflix’s revenue growth is cooling, and the line that actually compounds for shareholders has been running far ahead of it.

Netflix (NFLX) has lost about 35% of its value over the past year while the S&P 500 gained 21%, and revenue growth has cooled to 13.4% in the second quarter of 2026, the slowest of the last four quarters. The sales line, though, is not the main thing driving Netflix’s per-share earnings.

Earnings Per Share Compounded About 50% A Year Over Three Years

Over the past three years per-share earnings compounded at about 50% a year, against 14.6% for revenue. Two levers opened that gap, and neither is the top line: an operating margin that traveled from 17.5% three years ago to 23.8% two years ago and 29.7% over the last twelve months, on $48.4 billion of revenue, and a shrinking share count. So the number a shareholder owns can keep compounding while the top line decelerates.

Content Spending Is Growing More Slowly Than Revenue On Purpose

That margin is a policy, not a windfall. For 2026, management forecasts content expense up about 10% against full-year guided revenue growth of 13% to 14%, or roughly 12% excluding currency, and says outright that it grows content spend slower than revenue. That 10% is above the 8% averaged over the past five years, and the gap doing the work here is only a few points wide.

The mix inside the budget is where the trade-offs show. Live programming is set to take about 5% of the 2026 content budget and produce about 1% of viewing hours, and management’s case for it is sign-ups rather than hours, since six of the ten biggest new-member sign-up days over the past five years came from live events. Cloud games and video podcasts are expanded gradually where management believes it can add more value for members, with the games investment still very small relative to overall content spend. Margin that comes from cost discipline is the sort of profitability trend the Trefis High Quality Portfolio looks for in its holdings.

A $4.7 Billion Buyback Quarter, The Largest In Netflix’s History

Netflix repurchased $4.7 billion of stock in the second quarter of 2026, with about $27 billion of authorization still open. Over three years the share count is down about 5.6%, and buybacks have run ahead of stock-based compensation, so the reduction is real rather than a plug for dilution. Fewer shares against a faster-growing profit pool add a further, smaller push on top of the margin gains.

At 24 Times Earnings, What Would Have To Go Wrong

The case is not that growth is about to re-accelerate. That margin, 29.7% over the last twelve months, is up from only 29.5% a year earlier, so the compounding from here leans more on holding content growth below revenue and on the buyback than on fresh margin, and a content bill that outran revenue would end it. At 24 times earnings, toward the low end of a ten-year range running from 15.3 to 285, the price appears to give that profit line little credit, and sorting names that have fallen this far on what they still earn is what a dip-buying screen is built to do.

Even A Compounding Engine Can Re-Rate Downward

Netflix’s three-year per-share compounding did not stop the stock from giving up about a third of its value over the past year, which is what a single position can do even when the business behind it is working. The Trefis High Quality Portfolio takes the other route, spreading that risk across a rules-based basket of quality names. That portfolio has a track record of outpacing the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.