What Happened?
Shares of streaming video giant Netflix (NASDAQ: NFLX) fell 5% in the afternoon session after the company reported strong second-quarter earnings but warned of pressure on future profitability.
Although the streaming giant beat Wall Street's expectations for both revenue and profit, the positive results were overshadowed by its outlook. Netflix posted second-quarter revenue of $11.08 billion, a 16% increase from the prior year, and raised its revenue forecast for the full year. Net income also surged. The sell-off appeared to be driven by the company's guidance on operating margins. Management warned investors that margins in the second half of 2025 were expected to be weaker due to higher spending on content and marketing. With the stock having gained roughly 40% year-to-date before the announcement, investors seemed to focus on the future cost pressures rather than the strong quarterly performance.
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What Is The Market Telling Us
Netflix’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 15.4% on the news that the company reported impressive fourth-quarter results, which blew past analysts' global streaming paid memberships expectations, with a strong net add figure (18.9 million vs. estimates of 9.8 million). This led to a revenue and EPS beat in the quarter.
Additionally, revenue guidance for 2025 beat expectations, and the company spoke optimistically about multiple vectors such as ad revenue, live events, and new content. Netflix's decision to increase pricing on certain subscription plans also reflected management's confidence in its content's quality and suggests potential benefits for both sales and profitability.
Overall, this quarter was strong. Following the strong performance, Barclays upgraded the stock's rating from Sell to Hold, adding, "The company's continued outperformance largely disproves our hypothesis on growth mean reversion and while growth will slow in '25, current operating momentum if sustained, could drive further upside."
Netflix is up 37% since the beginning of the year, but at $1,215 per share, it is still trading 9.3% below its 52-week high of $1,339 from June 2025. Investors who bought $1,000 worth of Netflix’s shares 5 years ago would now be looking at an investment worth $2,418.
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