Sure, Netflix Stock Took a Tumble Last Week. Here's Why I'm Still Bullish on the Company

Netflix (NFLX) experienced a stock decline after its Q3 2025 earnings report, missing operating margin guidance (28% vs. 31.5%) due to a one-time $619 million tax expense from a Brazilian dispute, which management stated would not have impacted guidance otherwise and is not expected to recur. Despite this, the company reported 17% year-over-year revenue growth and strong free cash flow generation, with ongoing opportunities in linear TV conversion and ad-supported tiers. Analysts project approximately 23% annual earnings growth for Netflix over the next 3-5 years, suggesting the recent dip may present a strategic entry point for long-term investors.

Analysis

Netflix (NFLX) reported a Q3 2025 operating margin of 28%, falling short of its 31.5% guidance, which led to a stock decline despite a 60% gain over the prior year. This miss was primarily due to a one-time $619 million tax expense from a Brazilian dispute, which management stated was not factored into forecasts and is not expected to recur. Absent this charge, the operating margin would have exceeded guidance, indicating the underlying operational performance was stronger than reported.

Despite the short-term margin impact, Netflix demonstrated robust underlying business health, achieving 17% year-over-year revenue growth in Q3. The company generated nearly $9 billion in free cash flow over the past four quarters, a significant improvement from prior periods. Key growth levers include continued conversion from linear television, which still holds 42.3% of U.S. viewership, and successful expansion of ad-supported membership tiers.

Wall Street analysts anticipate Netflix's earnings to grow by approximately 23% annually over the next three to five years, reflecting confidence in its long-term strategy. While the stock trades at a forward P/E of around 43 even after its recent dip, this valuation is considered justifiable by some given the strong projected growth and its position as a leading streaming service. The recent sell-off is framed as a potential buying opportunity for long-term investors.

Key Decisions for Investors

• Investors should assess the one-time nature of the Q3 tax expense and its non-recurring impact on future profitability, focusing on the underlying operational performance.
• Monitor Netflix's continued progress in converting linear TV viewership and the scaling of its ad-supported tiers as key drivers for sustained revenue and subscriber growth.
• Evaluate the stock's current forward P/E of 43 against the projected 23% annual earnings growth over the next 3-5 years to determine if the valuation aligns with long-term investment horizons.