Netflix Stock To Fall 50%?

Netflix stock (NASDAQ:NFLX) has been a stellar performer, rising by 45% over the past 12 months and trades at levels of about $1,100 per share currently.  The rally has been driven by the company’s crackdown on password sharing and the expansion of its advertising-supported streaming tier, although the stock saw a small sell-off in recent months. Falling from highs of about $1,340 seen around June, due to weaker than expected Q3 earnings, which saw Netflix revenues and margins come in below estimates. Even after the recent decline, the stock still trades at about 45x forward earnings.

We believe the stock faces considerable downside risk at these elevated levels. With mounting macroeconomic uncertainty and signs that subscriber growth could slow, investors may be underestimating potential risks. In our view, the stock could fall significantly –  possibly dropping below $500 per share. A 50% correction might sound extreme, but it would not be unprecedented. It has happened before, and could very well happen again. That said, a potential correction would not necessarily stem from a collapse in Netflix’s fundamentals, but rather from a re-rating of its valuation multiple as growth normalizes.

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Why Is It Relevant Now?

Netflix’s subscriber growth could eventually slow as key initiatives like the password-sharing crackdown and ad-supported plans have already been rolled out across major markets. These were major strategic shifts aimed at unlocking new revenue streams and expanding the user base after growth plateaued post-pandemic. However, they likely pulled forward demand that might have otherwise materialized over the next few years. This might result in softer subscriber additions going forward. The company’s decision to stop reporting subscriber numbers from 2025 could also signal internal expectations of slower growth going forward.

In 2024 alone, Netflix added over 40 million subscribers, pushing its paid user base to nearly 302 million by year-end, a record annual increase that significantly fueled the stock’s rally. Growth was largely driven by the password-sharing crackdown, which encouraged users to either pay for extra member access or sign up for new accounts. Meanwhile, the ad-supported tier gained strong traction, with Netflix indicating last quarter that it had over 94 million ad-supported users. Sure, Netflix is getting better at monetization of its ads, but subscriber growth has been a key driver of the company’s expansion. With these major growth levers now largely tapped, Netflix may struggle to sustain its current momentum, potentially affecting the stock’s performance.

Economic uncertainty, higher costs could also weigh on Netflix, which is highly dependent on consumer spending. The imposition of tariffs on key trading partners is already causing U.S. inflation to pick up. This could lower disposable income, and potentially weaken consumer spending. This could be a negative for Netflix, which relies on discretionary income. It also doesn’t help that Netflix plans have become more expensive, with its premium plan now priced at $25 per month and the standard HD plan recently increasing by $2.50 to $18 per month. This could lead to slower new sign-ups.

At the same time, Netflix’s content costs are poised to rise as it ventures deeper into live sports programming such as NFL games and WWE wrestling, which typically involve higher production and licensing expenses. While the recent dip in Q3 operating margin to 28%- versus a forecast of 31.5% – was primarily tied to an unexpected tax dispute in Brazil, margins could remain vulnerable as spending pressures build. For the full year 2025, Netflix now expects an operating margin of 29%, down slightly from its prior forecast of 30%.

How Resilient Is NFLX Stock During A Downturn?

NFLX stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on NFLX stock? Our dashboard How Low Can Stocks Go In A Market Crash has a detailed analysis of how S&P stocks performed during and after previous market crashes.

2022 Inflation Shock

• NFLX stock fell 75.9% from a high of $691.69 on 17 November 2021 to $166.37 on 11 May 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 20 August 2024
• Since then, the stock increased to a high of $1,339.13 on 30 June 2025 , and currently trades at $1,094.69

2020 Covid Pandemic

• NFLX stock fell 22.9% from a high of $387.78 on 18 February 2020 to $298.84 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 13 April 2020

2008 Global Financial Crisis

• NFLX stock fell 55.9% from a high of $5.81 on 17 April 2008 to $2.56 on 27 October 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 March 2009

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read NFLX Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Premium Valuation

At the current stock price of $1,100 per share, Netflix trades at around 45x consensus 2025 earnings and about 34x 2026 consensus earnings, which is elevated versus historical levels. In comparison, the stock was trading at levels of around 20x earnings back in mid-2022. Although Netflix’s recent financial performance has been strong, markets tend to be short-sighted, extrapolating short-term successes for the long run. In Netflix’s case, the assumption is likely that the company will continue its strong streak of subscriber additions and likely grow revenues comfortably at double digits.

However, there’s a real possibility that Netflix will soon see growth cool, as the twin benefit of the password-sharing crackdown and ad-supported tiers eventually stabilize, with economic uncertainty also growing in the U.S. In essence, the downside risk here is less about Netflix’s business viability and more about how much investors are willing to pay for its next phase of slower, more mature growth.

Concerned about Netflix stock’s elevated valuation? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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