Should You Buy Netflix Stock Because Its Earnings Outrun Its Sales?
Netflix (NFLX) has fallen about 35% over the past year, while the S&P 500 returned about 17%. The complaint is simple. Sales growth is slowing, and management will not show the quality metrics it leans on. That case misses the engine under per-share earnings, a wider margin, and a shrinking share count.
Why Are Analysts Pressing Netflix On Its Slowing Top Line?
Management guided revenue growth of 11% excluding currency for the third quarter of 2026, below the second quarter’s 12% on the same basis. The CFO put part of that step down to a back-half-weighted year-ago comparison. Analysts have also pressed on viewing hours per member, which they say has softened.
The shares trade near $78, about 63% of their 52-week high. At that price the market appears to be paying for a mature business. The buy case has to rest on something other than the top line.
How Do Netflix’s Earnings Grow Faster Than Its Sales?
Over the past three years per-share earnings compounded at about 50% a year, faster than revenue’s 14.6%. One lever is the operating margin, which went from 17.5% three years ago to 29.7% over the last twelve months.
That margin came out of how the content money is spent. Management forecasts content expense up about 10% in 2026 and says it grows content spend slower than revenue.
Live events show why view hours are the wrong yardstick. Management expects them to take about 5% of the content budget in 2026 and deliver only 1% of view hours. Yet six of the top ten new member sign-up days over the past five years came from live events. Live spending is aimed at sign-ups rather than at hours.
Another lever is the share count, down about 5.6% over three years, with buybacks running ahead of stock compensation. Netflix repurchased $4.7 billion of stock in the second quarter of 2026. That was its largest quarter of share repurchase ever, and about $27 billion of authorization is left, roughly 8% of the company’s market value. Management calls itself primarily a builder rather than an acquirer, with a high bar for large acquisitions.
Can Netflix Keep Widening The Margin While Growth Slows?
The easy part is done. The operating margin climb is mostly behind, and the last twelve months added almost nothing. The three-year per-share pace is history, not a forecast.
What is left is narrower. Management says the gap between the ad tier’s revenue per member and the ad-free plan’s is narrowing and calls that gap revenue growth it has not collected yet.
The case rests on two things. The margin has to hold while content expense grows about 10% in 2026, and the buyback has to keep running. At 23.9 times trailing earnings, near the low end of its own ten-year range, you are not paying up for either. If you buy after a repricing, our dip screen tracks stocks the market has marked down this hard.
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