Netflix's blockbuster run loses spark amid valuation jitters

Netflix shares fell more than 10 percent on Wednesday, as the streaming giant’s outlook for the coming quarter left investors nonplussed despite a strong line-up of shows that includes the final season of “Stranger Things”.

Investors have become accustomed to routine outperformance from the company that propelled the stock to a gain of more than 360 percent over the past three years, far outpacing media bellwethers like Walt Disney and even tech stalwarts Apple and Alphabet.

It has garnered additional attention with the sweeping success of the animated “KPop Demon Hunters”.

But since peaking in June, shares have declined more than 16 percent, signaling that investors are growing cautious about its lofty valuation and lack of details about subscriber growth. The company’s forward price-to-earnings multiple stands at nearly 40, far more than other media companies and major tech names.

“Shares have enjoyed a strong run this year, so expectations were already high, and with the valuation sitting above its long-term average, there’s added pressure not just to deliver but to exceed,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Netflix forecast revenue of $11.96 billion for the fourth quarter, compared with Wall Street’s projection for $11.9 billion. Third-quarter revenue was roughly in line with forecasts, at $11.5 billion, according to LSEG data.

The company has ventured into advertising and video games to diversify its revenue streams, but these businesses have struggled amid shifts in leadership and strategy, along with competition.

For the third quarter, Netflix said it recorded its best ad sales quarter in history without disclosing a number.

“Netflix must demonstrate soon that its ad program can accelerate growth to justify a sky-high multiple,” analysts at Wedbush said, calling the company’s latest guidance “underwhelming” after several quarters of standout results.

Netflix stopped reporting subscriber figures early in 2025. The company is banking on its major releases through year-end that include “Stranger Things” and two NFL games set to stream live on Christmas Day.

However, Evercore ISI analysts suggested investors should buy any dip in the stock, noting competitors Disney+ and HBO Max have increased their subscription prices, giving Netflix plenty of cover to boost its own rates.

The Connecticut-based firm missed profit estimates for the third quarter due to a $619 million charge linked to a tax dispute in Brazil. J.P. Morgan analysts described the expense as “noise,” noting that “the bigger focus is the lack of revenue upside in the back half of the year”.

“With no subscriber numbers, some advocates are grasping at straws to find any sign of weakness, as the company is faring much stronger than its rivals,” said PP Foresight analyst Paolo Pescatore.

At least three brokerages lowered their price targets on Netflix after the results.