Netflix Slaps Wall Street with Bigly Earnings Beat, Wall Street Shrugs & Responds "Cool Story, Bro"

Netflix did what it always does: it beat, it raised, it smiled politely at Wall Street… and got clocked for not levitating. The stock dropped over 4% Friday morning, because investors apparently wanted a miracle, not math. 

(Source: Giphy) 

In short, Netflix  beat earnings, raised guidance, flexed a 34% operating margin, and told investors it’s going to casually rack up $8.5 billion in free cash flow this year. In any sane market, that’s called a win. But this isn't a sane market. This is a market where “up only” has become table stakes and beating expectations only counts if you also juggle flaming swords and birth a unicorn on the earnings call.

(Source: Yahoo Finance) 

With that said, Netflix definitely still has that dawg in them. The company delivered $11.08 billion in Q2 revenue, up 17.3% year-over-year. EPS came in at $7.19 vs. a forecast of $7.03. Meanwhile, the company then upped its full-year revenue guide to as high as $45.2B (mainly due to more FX money on the table up for grabs). Bigly. And yet, that right there is the issue. Wall Street wasn’t mad about the numbers. They were mad about why the numbers looked so good. Stronger guidance should mean accelerating operations, not a friendly exchange rate. That’s like winning a poker hand because the dealer felt bad for you. No one's impressed. Again, especially not when you’re trading at 40x forward earnings. 

Additionally, Netflix is priced like it’s already conquered the entire attention economy and now charges viewers in brainwaves. That’s fine… until the forward setup starts looking fragile. Ad revenue is growing, sure, but it’s still embryonic. The company expects $3B in ad revenue next year, and while 94 million global MAUs on the ad tier sounds good on paper, the fact they had to hike prices on that plan to $7.99 shows margins are still allergic to scale.

(Source: Giphy) 

As for the engagement, Netflix stopped reporting subs, which is like a boxer refusing weigh-ins and claiming he still punches hard. Spoiler: They do, but they did say users watched 95 billion hours in 1H25. Great. Except that’s only 1% y/y growth. And if revenue’s growing 17%+ while time spent barely budges, that means either 1) users are watching less, or 2) the monetization math is getting sketchy AF. Meaning, here’s the part nobody wants to say out loud: Q2 might have been the high point.

Squid Game S3 dropped during the quarter and gave the whole thing a sugar high. The next few quarters are staring down a brutal comparison… Last year’s Paul-Tyson fight and Netflix’s first NFL Christmas Day game juiced engagement, ad eyeballs, and subscriber adds all at once. This year, we’re getting Wednesday S2, and the absolute disappointment that was the Serrano vs. Taylor. On the other hand, while macro factors like tariffs won’t directly hit Netflix (streaming isn’t a physical import, last we checked), the company’s a consumer-facing product living on discretionary dollars. If inflation gives consumers another swift kick in the right spot or the economy hiccups, expect churn to spike… especially if your ad-tier customers are the price-sensitive crowd who joined after password-sharing got nuked.

(Source: Imgflip) 

In the end, Netflix is still running laps around most of streaming. But when you're priced like the second coming of Apple, “good” isn't good enough. And FX-fueled optimism isn't a growth story… it’s a currency grift. The good news is the content is still borderline addictive, the margins are still thicc and juicy, and the cash is definitely flowing. But if engagement stalls and ad dollars get stingy, that 40x multiple starts to feel like a dare. And Wall Street doesn’t do dares. It does math… even when it doesn’t make sense.

Meaning, keep your eyes on Netflix as we continue through todays price action and place your bets accordingly. Until next time, friends…

At the time of publishing, Stocks.News holds positions in Netflix and Apple as mentioned in the article.