Rosenblatt reiterates Neutral rating on Netflix stock amid slump

Netflix shares are down 21% YTD (28% over the past three months) and are hovering near the 52-week low (~$70.86) ahead of its Q2 2026 earnings report on July 16. Rosenblatt reiterated a Neutral rating with a $95 target, citing concerns around declining user engagement and projecting low-20% EBITDA growth CAGR, while other banks remain more constructive (Evercore Outperform, BofA Buy with $125 target; Morgan Stanley Overweight at $90; KeyBanc Overweight at $92). Street expectations call for Q2 revenue of $12.58B (+13.5% YoY), operating income of $4.13B, and EPS of $0.79.

Analysis

NFLX is in a classic trust-reset phase: the market is no longer paying for subscriber optics alone, it wants proof that engagement translates into durable monetization. If management can’t reconcile the opaque internal metric with visible revenue or ARPU acceleration, the stock can keep de-rating even if the quarter itself looks fine; that’s a multiple-risk story, not just an EPS-risk story. Near term, the biggest catalyst is not the print but how credibly the call explains whether engagement weakness is temporary or structural.

The World Cup rights angle is the more interesting second-order risk. If Netflix chases marquee live sports, it raises the ceiling on ad load and global reach, but it also turns content spend into a capital-allocation question: expensive inventory can help retention only if it materially reduces churn, otherwise it compresses free cash flow and invites investor pushback. That would be an indirect positive for rivals with more disciplined content economics, while also forcing Amazon and Disney to keep pace in live-event bidding.

Contrarian view: the bearish consensus may be overstating the fragility of the business because this is still one of the few streaming assets with genuine pricing power and operating leverage. If the company simply avoids a guidance cut and reiterates confidence in the engagement framework, the stock can squeeze higher fast because positioning is already defensive. The thesis breaks if the company hints that the metric rolled over again, or if sports-rights spend starts to pressure margin guidance rather than expand TAM.

Key Decisions for Investors

• Use a defined-risk bearish structure into earnings: buy NFLX 1-2 month put spreads rather than shorting outright; attractive if the market is underpricing the chance of a trust reset on engagement. Falsify if management reaffirms the metric and guides FY EBITDA/FCF above consensus.
• If the stock rallies on the print, fade strength with a call-spread sale in NFLX over the next 2-4 weeks; the setup is multiple compression more than outright revenue collapse. Cover if NFLX re-rates back above the prior breakdown zone on stronger engagement commentary.