Netflix Lost 22% This Year After Its WBD Deal Collapsed. Is NFLX Stock Now a Buying Opportunity?

Key Stats for Netflix, Inc.

• 52-Week Range: $65.08 to $124.86
• Street Target Price: $92.93
• Market Cap: $297.1B
• LTM Gross Margin: 49.1%
• LTM EBIT Margin: 29.7%
• Fwd 2-Yr Revenue CAGR: ~12%
• Fwd 2-Yr EPS CAGR: ~23%

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The Deal That Fell Apart and the Stock That Paid for It

Netflix (NFLX) came into 2026 as one of the most closely watched stories in media. The October 2025 announcement of a planned acquisition of Warner Bros.

Discovery’s streaming and studio businesses, including HBO Max and one of the most valuable content libraries in the entertainment industry, sent the stock surging. Investors priced in the synergies, the content depth, the distribution scale, and the stock ran all the way to $124.86.

Then WBD walked. In February 2026, the company terminated the merger to instead combine with Paramount Skydance, paying Netflix a $2.8B termination fee on the way out.

The deal premium came out of the stock quickly and has not come back. NFLX is down 22% year to date, sitting well off its highs, even though the business itself has continued to perform.

Q2 revenue grew 13% to $12.56B, operating margin came in at 33.4%, EPS of $0.80 beat by a penny, and Netflix completed $4.7B in buybacks during the quarter, its largest ever single-quarter repurchase.

The FCF chart reframes what Netflix has actually become in a way the stock price is not reflecting right now. As recently as 2021, the company generated negative free cash flow, a direct consequence of years of aggressive content spending to build the library and subscriber base that now defines the platform.

The business turned cash flow positive in 2022 at $1.6B, stepped up to $6.9B in 2023, held that level through 2024, and then jumped to $9.46B in 2025.

Generating nearly $9.5B in annual free cash flow at a $297B market cap is not the profile of the cash-burning content spender that shaped how many investors still think about Netflix. The FCF inflection is the most underappreciated part of this story at current levels.

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The Advertising Business Is the Growth Story the Market Is Missing

The subscription side of Netflix is mature and well understood at this point. What is getting less credit in the current price is the advertising business the company has been steadily building since launching its ad-supported tier in 2022.

Ad revenue is tracking toward roughly doubling year over year to around $3B in 2026, and around 60% of new subscribers in markets where the option is available are choosing the ad tier over the more expensive ad-free plan.

People who once thought Netflix was too expensive are now subscribers, which expands the addressable market while adding a high-margin revenue layer on top of what was already a profitable subscription base.

The operating income chart shows the margin transformation in concrete terms. Starting at $5.6B in 2022, operating income climbed to $6.95B in 2023, $10.4B in 2024, and $13.3B in 2025.

Q2 2026 operating income of $4.19B puts the full year on pace for another record, and management held its full-year margin target of 31.5% even after the WBD deal collapsed and removed the synergy case.

The advertising layer makes further margin expansion more credible going forward, because incremental ad dollars carry higher margins than the subscription base as inventory grows and targeting improves.

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What the Valuation Looks Like at 20x Forward Earnings

Twenty times forward earnings is a real discount to where Netflix traded through most of 2024 and into early 2025, before deal speculation pushed the multiple to levels that were difficult to justify on organic fundamentals alone.

The Street’s consensus target sits around $93, implying roughly 30% upside from here, with most analysts constructive on the combination of subscription growth, ad momentum, and the ongoing buyback. With $27B remaining in its repurchase authorization after Q2, management is clearly not neutral on the current price.

The TIKR valuation model’s mid case lands at around $143 over the next 4.3 years, implying roughly 101% in total return at around 18% annualized. Revenue grows around 10% annually, net income margins expand toward 32%, and EPS grows around 16% per year.

The headwind worth flagging is P/E compression of around 4% annually, which sounds manageable until you look at the history: the market has compressed Netflix’s multiple at 13% to 22% annually across various lookback periods.

The model’s forward assumption is notably more optimistic than that track record, and the mid-case returns depend on this cycle playing out differently than the past ones have.

Should You Buy Netflix Stock?

The bull case is that the WBD selloff handed investors an entry into one of the most profitable media businesses in the world at a price that reflects deal disappointment rather than anything that has changed in the underlying business.

Nearly $9.5B in annual free cash flow, 33% operating margins, an advertising business that is doubling, and $27B in remaining buyback authorization all point toward a business that has outgrown the way most people still think about it.

The bear case is what the deal attempt quietly revealed. Netflix went after WBD’s content library because building engagement organically at this scale is expensive and getting harder.

Without it, the platform depends on its own content pipeline, which has produced genuine hits and genuine misses in equal measure.

Moving viewership data to annual disclosure makes it harder to track engagement in real time, and at $297B in market cap, any stumble in revenue or margin growth is going to get repriced fast.

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!