Down 29% Since June, Is Netflix Stock a Buy?

Netflix shares have fallen about 29% since the end of June amid a post-Q3 sell-off tied to a one-time Brazilian tax charge and escalating merger drama after Netflix agreed to buy Warner Bros. Discovery’s studios in a deal valued at roughly $72 billion, which has attracted a hostile $30-per-share Paramount Skydance counterbid (~$108.4 billion) and raises regulatory, integration and management-distraction risks (Netflix would owe a $5.8 billion termination fee under certain conditions). Operationally the business is strong—Q3 revenue rose 17.2% year-over-year (up from 15.9% in Q2), operating margin was 28.2% despite a roughly $619 million tax hit, free cash flow jumped about 21% to ~$2.7 billion, and ad sales are accelerating—yet the stock still trades at about a 40x P/E, implying investors must pay for continued double-digit growth; the combination of a rich valuation and heightened deal risk makes the shares interesting but more appropriate for a limited, risk-tolerant position rather than a full conviction buy.

Analysis

Netflix shares have fallen roughly 29% since the end of June, a decline initially amplified by a post‑Q3 sell‑off tied to a one‑time Brazilian tax charge and more recently by M&A turbulence after Netflix agreed to buy Warner Bros. Discovery’s studios in a deal valued at about $72 billion. Paramount Skydance’s hostile all‑cash $30 per share counteroffer (roughly $108.4 billion) and the $5.8 billion termination‑fee provision introduce substantive regulatory, competitive and execution uncertainty that could distract management and pressure valuation.

Operationally the company is strong: Q3 revenue rose 17.2% year‑over‑year (up from 15.9% in Q2), operating margin was 28.2% despite a roughly $619 million Brazilian tax expense, free cash flow increased about 21% to ~$2.7 billion, and management said ad sales are on track to more than double this year. Those metrics confirm durable growth and improving cash generation independent of the acquisition narrative.

The stock still trades at about a 40x P/E, implying investors are paying for sustained double‑digit revenue and earnings expansion; that premium, combined with heightened M&A and regulatory risk, argues for measured exposure rather than large conviction positions. A prolonged bidding fight or adverse regulatory outcome could produce further downside or volatility despite robust fundamentals.

Key Decisions for Investors

• Maintain only a small, opportunistic Netflix position rather than a core allocation given a ~40x P/E and the $72bn deal’s integration and regulatory risks
• Monitor the Warner Bros. Discovery bidding process, regulatory filings and any termination‑fee triggers since Paramount Skydance’s $30/share (~$108.4bn) counteroffer and a potential $5.8bn fee could cause material moves
• Use ongoing operational data — ad revenue acceleration and FCF growth (Q3 FCF +21% to ~$2.7bn) — as the primary signals to scale exposure, and reconsider valuation if that momentum weakens
• Avoid initiating large new positions until there is meaningful clarity on the M&A outcome or regulatory outlook to limit idiosyncratic M&A and execution risk