NFLX: From Internet Darling to Pariah?

$Netflix(NFLX.US) Q2 results landed roughly in line with muted expectations yet still underwhelmed. In the near term, performance is pressured by a late-stage content cycle and giveback from price hikes in core markets, and this also keeps some capital worried about NFLX's mid- to long-term 'ghost stories'.

A closer look:

1. Revenue Growth Keeps Decelerating: Q2 revenue was 12.6bn, +13% YoY (+12% at ccy), broadly in line with guidance. However, the steady deceleration in growth further weakens confidence in the outlook.

There were no new price increases in Q2, but the company has been digesting the hikes rolled out in the US and other core markets late last year. At the tail end of the content cycle, the negative impact tends to be larger and longer.

Management guided Q3 revenue of 12.86bn, below Street expectations. The implied growth slows from 13.4% to 11.8%, and this already includes a 1pt FX tailwind.

Meanwhile, management did not cut the full-year revenue guide, narrowing the range from 50.7–51.7bn to 51.0–51.4bn (ads still expected at 3.0bn), implying 13–14% growth (12% at ccy). The market, accustomed to historically conservative guidance, had anchored to >51.4bn. As such, the FY guide did not deliver the upside needed to rebuild confidence.

2. Profitability Holds Steady: Despite lukewarm revenue, Q2 operating profit posted a small beat, mainly on modest SG&A efficiencies. R&D continued to rise in absolute terms due to investments in new features such as a kids gaming app and Clips short video.

Last quarter's profit missed, and after management laid out plans for R&D spending, the Street trimmed margin expectations, creating the setup for this quarter's beat. Fundamentally, NFLX's business model provides levers to adjust, and price hikes support marginal OPM expansion. For the full year, the company still targets a 31.5% OPM (+200bps YoY).

3. Buybacks Ramp Up as Expected: Another noteworthy change this quarter is that buybacks resumed and scaled up after the acquisition pause, in line with expectations; in Apr, the company announced an additional 25bn authorization. Q2 repurchases reached 4.7bn vs 1.3bn in Q1, clearly above typical quarterly levels.

Since 2023, absent large M&A, roughly 90% of FCF has been spent on buybacks. If the same ratio holds this year, with FCF guided at 12.5bn, repurchases could reach about 11.2bn or higher given the current low valuation.

Based on a post-market drop of 8%, the market cap stands at 285bn, and shareholder yield could reach ~4% this year. That is meaningfully higher than the past three years and should offer some support while multiples are under pressure.

4. Key Financials at a Glance

Dolphin Research's View

Last quarter we argued that much of the valuation repair had occurred, and further upside would require withstanding price hikes amid reduced content supply. Unfortunately, Q2 played out the bearish case we anticipated: at the end of the content cycle, pushback from price increases in core markets was larger and lasted longer. Throughout Q2, third-party user data had flagged the issue in advance, and much of it was reflected in the steadily correcting share price.

As the leading streamer, NFLX's model and competitive advantages give it room to adjust, so weak user metrics do not always translate into weak results. During valuation resets, the market tends to assign a faith-based floor. When sentiment turns overly pessimistic, there is scope to trade for a rebound.

However, confirmation of a medium- to long-term turn requires improvement in forward user indicators to restore confidence, which ultimately depends on premium content. Supply should be heavier in 2H than 1H (especially vs Q2), focusing on live sports and sequels to classic IPs, which should help accelerate the easing of price headwinds.

Scripted series will still trail the peaks of the past two years. The incremental benefit from live sports mainly reflects streaming's substitution of legacy cable, and NFLX has secured NFL rights for the coming years. Sports have broad reach, long viewing windows, and add advertising revenue, making them a useful fill-in when hit series are scarce.

Overall, Q2 was muted and the guide missed, with short-term content supply the primary culprit. Sentiment may amplify longer-term industry threats (short video, AI-generated animation), pressuring valuation multiples. If users return in 2H as content ramps and results improve at the margin, sentiment should repair quickly.

Given NFLX's franchise and investors' preference for the streaming model, high multiples tend to compress notably only when content is at a trough and sentiment is weak. On company guidance, FY P/E is about 20x, vs 30–40x in prior years, putting valuation in a relatively low zone.

Even if revenue deceleration persists in 2H, long-only funds may gradually add on the pullback, supported by management's consistent execution. The market may also be underestimating AI-driven cost efficiencies, making the current reset a window to accumulate.

Details below

I. Revenue Growth Slows

Q2 revenue was 12.6bn, up 13% YoY; at ccy, organic growth was 2%, in line with expectations. With the Q3 guide, growth continues to slow, an unfavorable trend. There were no broad-based price hikes in Q2, but the US increases from late last year and early this year are still being absorbed.

Sensor Tower data shows DAUs continue to decline across regions. Forward indicators mainly reflect a drop in downloads in the US, the core market.

H2 Content Pipeline: Live Sports to Fill the Gap

The 2H scripted slate is not particularly strong (notables include 'Lupin' S4, 'Little House on the Prairie', and 'Outer Banks' S5). However, overall supply is boosted by more live sports, especially the NFL rights NFLX renewed this year.

II. Stepping Up Investment, as Expected

As a bellwether, the cadence of content spend signals the intensity of competition, so Dolphin Research tracks shifts at Netflix and Disney. Q2 content spend reached 5.1bn, up from Q1 and +26% YoY, continuing to accelerate.

This puts 1H spend near 10bn. Based on the plan of content amortization x1.1, with amortization up 10%, full-year content spend of about 20bn looks achievable. After abandoning the WBD acquisition, management has incentive to fully deploy the content budget to compensate for the lost competitive edge.

North American Nielsen share data suggests cord-cutting is stable for now, but competition within streaming remains fierce. YouTube stays strong, Amazon is leading in the short term, and Netflix is lagging.

III. Business Model Advantage: Revenue Under Pressure, Profitability Intact

Q2 operating profit was nearly 4.2bn with an OPM of 33%, a small beat driven by opex optimization. Management maintained the full-year OPM target of 31.5% (+250bps YoY).

Q2 free cash flow was 1.5bn, and full-year FCF remains guided at 12.5bn. Net cash at quarter-end was 6.5bn (short-term debt of 2.5bn, with one maturity this year).

After announcing a new 25bn authorization, buybacks jumped from less than 2bn last quarter to nearly 5bn in Q2. Using the historical rule of ~90% of FCF allocated to buybacks implies about 11.2bn this year, which equates to roughly a 4% shareholder return at current levels.

Past Dolphin Research on Netflix

Earnings Season (Recent)

Apr 17, 2026 Earnings Call Notes: Full-year revenue guide factors in potential price hikes this year

Apr 17, 2026 Earnings Take: No WBD deal, still a bomb — has Netflix lost its touch?

Jan 21, 2026 Earnings Call Notes: TV competition is intense; confident on deal approval

Jan 21, 2026 Earnings Take: Netflix: will the acquisition sink the hit-maker? Time to test faith again

Risk disclosure and statement: Dolphin Research Disclaimer and General Disclosures