There Are Plenty of Reasons to Buy Netflix Stock. This Is the One Investors Shouldn't Overlook.

Netflix shares are down 22% YTD and trade at the lowest valuation since 2022, ahead of Q2 earnings on July 16. Q1 revenue rose 16.2% YoY to $12.2B and EPS jumped 86% to $1.23, helped by a $2.8B Warner Bros. Discovery termination fee, but the Q2 outlook calls for $12.57B revenue (+13.5%). Despite concerns over engagement metrics (including potential live-TV experiments), the article argues valuation is supportive (24x earnings, 23x forward) and notes analysts’ median target of $115 (+56% upside).

Analysis

The market is treating this as a maturity problem, not a growth problem: if engagement is flattening, the multiple should compress even with solid FCF. Adding live programming is best read as a retention defense, which can support ad inventory and reduce churn, but it also signals that incremental hours are becoming more expensive to manufacture. That is constructive for scale players with balance-sheet flexibility and a headwind for smaller streamers that would have to fund similar experiments with weaker cash generation.

Near term, the July 16 print is the real catalyst, not the product rumor. A clean beat may lift the stock for a few sessions, but the bigger question is whether management can show that engagement softness is isolated rather than a structural ceiling on price increases and ad-tier monetization. If guidance does not reaccelerate, the market may keep NFLX in a low-to-mid-20s earnings multiple despite strong absolute FCF.

The contrarian miss is that cheap versus history is not cheap versus the likely growth regime. If live TV becomes a real initiative, content rights holders gain negotiating leverage and margin expansion may slow, which matters more to the next 12 months than headline revenue growth. WBD is less a direct beneficiary than a relative-value short: any streamer needing more content spend while carrying leverage is more vulnerable if Netflix chooses to defend engagement aggressively.

Key Decisions for Investors

• If positioning for the July 16 earnings event, prefer a limited-risk NFLX Aug/Sep call spread only if implied volatility is not already pricing a large move; thesis is a re-rating on stable engagement and FCF, with downside capped at premium paid.
• If the print is merely in-line and guidance stays unchanged, use that strength to fade NFLX via a short-dated put spread; the setup is vulnerable to multiple compression if management does not prove engagement acceleration.
• Relative value: go long NFLX / short WBD over the next 1-3 months if the market starts pricing live-content expansion as a real strategic push; NFLX has the cash to experiment, while WBD remains more exposed to content-spend and leverage pressure.
• Set a watch item on Q2 commentary around ad-tier monetization and FCF conversion; if either disappoints, abandon the long thesis quickly because the stock’s support is valuation, not fundamentals inflecting higher.