Netflix (NFLX) shares have dropped 26.8% year to date, significantly underperforming the broader industry and sector. The company's revenue growth is slowing, with second-quarter 2026 revenues rising just 13.4% year over year, down from previous quarters. This slowdown was particularly notable in the US and Canada region, where revenue growth fell to 10%. Engagement trends also offer little comfort, with view hours growing only 2% year over year in the first half of 2026.
The streaming giant is facing rising content and live-programming costs, which are pressuring its margins and cash flow. Netflix expects live programming to account for over 5% of its 2026 content spend but only about 1% of view hours. Operating margins contracted to 33.4% in the second quarter, and free cash flow declined due to higher cash tax payments. Despite these challenges, Netflix narrowed its 2026 revenue forecast to $51-$51.4 billion and continues to target an operating margin of 31.5%.
Netflix's content pipeline remains robust, with several new series and live events scheduled for the rest of 2026 and 2027. However, these investments add to cost pressure and may take time to drive faster growth. The company's valuation remains elevated, with a forward 12-month price/sales ratio of 5.13X, compared to the industry's 3.52X. This premium leaves little room for error amid slowing growth and intense competition from rivals like Disney, Amazon, and Apple.
While Netflix's long-term prospects are supported by its healthy margins, fast-growing advertising business, and strong content pipeline, near-term upside is limited. Decelerating revenue growth, rising costs, and stiff competition make the stock unattractive at current levels. Until growth reaccelerates and cost pressures ease, investors should consider staying away from Netflix.