3 Reasons to Buy Netflix Stock in July

Netflix shares are down 29% since its last quarterly report and the stock trades at under 20x next year’s earnings (historically low). Heading into Q2 earnings in ~10 days, the company is modeling $12.574B revenue (+13.5%) and $3.327B net income (+6.5%), with slowing growth and contracting margins raising caution. Earlier guidance disappointment in mid-April drove a 10% post-report drop, leaving investors expecting a modest update—though valuation-reset arguments are fueling potential “binge-investing” optimism into the print.

Analysis

NFLX is in a classic “bad expectations, okay setup” window: the market has already discounted softer growth, so the first-order move on earnings is less about absolute performance and more about whether management can avoid another downward reset. The key mechanism is multiple stability — if margins and full-year guidance merely hold, the stock can re-rate from a depressed base; if either slips, the de-rating can continue because the premium streaming narrative is no longer paying for disappointments.

The bigger second-order issue is competitive spending power. If NFLX leans harder into content to defend engagement, that pressure flows through to studios, production vendors, and the rest of the streaming stack; DIS, WBD, and PARA would face a worse capital-allocation equation if Netflix proves it can still outgrow them while keeping returns intact. Conversely, if Netflix slows content investment to protect margins, that weakens the “winner-takes-most” thesis and gives competitors more room to narrow the quality gap.

The contrarian point is that the market may be overemphasizing valuation and underweighting durability. Sub-20x next year’s earnings looks cheap only if earnings are being revised up; if ad-tier monetization or ARPU decelerates, “cheap” can become a value trap quickly. The real catalyst path is 1-3 months: guidance, post-earnings analyst revisions, and whether the stock can hold any gap-up rather than fade into a lower-trough trading range.

For risk control, the biggest falsifier is a guide-down on operating margin or full-year free cash flow, especially if management signals heavier content spend to preserve growth. A second falsifier is any sign that engagement gains are being bought with lower pricing power — that would hit both the multiple and the bull case for premium subscription economics.

Key Decisions for Investors

• Prefer a tactical NFLX call spread over outright stock only if implied volatility into earnings is not already extreme; the setup is for a modest beat/hold-guidance squeeze rather than a sustained breakout.
• If NFLX rallies on earnings but management does not raise full-year margin or FCF outlook, fade the move on a 1-3 week horizon; that would likely be a short-covering pop rather than a new growth leg.
• Pair trade idea: long NFLX / short DIS into the print if you want to express premium-streaming outperformance; the thesis is that Netflix has better pricing power and lower legacy drag, while Disney remains more exposed to mixed media economics.
• Avoid chasing a pre-earnings long after the 29% drawdown; wait for either a guide-up or a post-earnings pullback to the gap support, because the risk/reward is asymmetric only if revisions stabilize.
• Set an alert for any downshift in net adds, operating margin, or free cash flow guidance; if any two deteriorate, the bullish multiple expansion case is broken and the stock could re-rate lower over the next 1-3 months.