The past year or so has been a tough time for a Netflix (NASDAQ: NFLX) shareholder. The stock is down 43% from its all-time high reached in June of last year. Meanwhile, the S&P 500 is up 23% in the same period.
Fears of slowing growth, rising competition from short-form video and artificial intelligence (AI), and management’s decision to report fewer metrics over the years have put pressure on the stock price. But I remain focused on the core operating strategy driving Netflix’s financial results, and I see the stock’s sell-off for what it truly is: an incredible buying opportunity.
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At the current share price, I’m confident Netflix will be worth more by 2028. In fact, I expect it to produce returns that exceed the stock market average over the long run.
The core business strategy at Netflix hasn’t changed
Netflix has followed the same playbook for years. Its primary financial metrics are revenue and operating profit. With the vast majority of its revenue coming from subscriptions and viewer growth slowing relative to its massive 325 million subscriber base, management can predict, with a high degree of certainty, how much revenue it will generate for the year. It can then manage its biggest cost, content, to obtain a target operating margin.
Management aims to expand Netflix’s operating margin every year. This year, it’s aiming to achieve an operating margin of 31.5%, a 2-percentage-point expansion from last year and a 5-percentage-point improvement from two years ago.
The strategy has worked even as revenue growth slows. Management has kept content costs in check, up just 11.5% through the first half of 2026. It’s focused on a mix of high-quality flagship entertainment, including live events and sports, and broad low-cost additions like video podcasts. Total viewing hours grew 2% year over year in the first half of 2026, faster than the same period in 2025.
More importantly, it’s seeing success from providing more live programming, which drives new sign-ups well in excess of total time spent streaming them. That’s enabled it to continue raising prices with minimal impact on subscriber churn. Live events also bolster its advertising business, which is on track to generate approximately $3 billion this year.
