Netflix Is Down 44% - 3 Reasons the Bull Case May Still Work

Netflix's reset: the debate is revenue per user, not size

Netflix is no longer being judged only for being big. With the stock down more than 44% since its June 2025 high, investors want proof that the company can keep extracting more value from each viewer as easy growth fades.

A fine quarter was overshadowed by the outlook

Netflix's latest report was solid, not exciting. Q2 revenue of $12.56 billion and earnings per share of 80 cents were roughly in line with expectations, but management's weaker outlook weighed on sentiment, and the stock fell more than 7% in Friday trading. That captures the current debate: bears see a company fighting harder for attention, while bulls see multiple monetization levers still in play.

The key test is simple. Scale matters mainly if it lifts revenue per user and margins over time. If that happens, the selloff can look like a buying window. If not, the stock may remain stuck in "good, but not great."

Reason 1: Pricing power still supports monetization flexibility

Netflix may not need a dramatic subscriber surge if it can keep raising revenue per user through pricing and ads.

The recent price hikes still look within expectations

Q2 revenue of $12.56 billion grew 13% year over year, driven by membership growth, pricing, and higher ad revenue. Management also said the price increases across all streaming plans earlier this year were consistent with prior changes and expectations. That does not prove a long runway, but it does suggest Netflix still has pricing power for now.

For a company with Netflix's scale, getting a bit more from existing paying members is often more efficient than chasing many new ones. The content engine is already running, so even modest increases can support profitability.

Ads add a second monetization lever

Netflix is also expanding beyond subscriptions alone. In April, the company said advertising revenue remains on track to reach $3B in 2026, up 2x year-over-year. That gives Netflix more flexibility in how it designs plans and captures value from the same audience.

Bears can argue that cheaper ad-supported tiers could cannibalize higher-paying subscriptions. That is a real risk. For now, though, Netflix appears to be getting some lift from both pricing and advertising.

Reason 2: Advertising is the cleaner upside lever

Management said higher advertising revenue helped drive the latest quarter, and Netflix has said advertising revenue remains on track to reach $3B in 2026, up 2x year-over-year. That makes ads the more interesting growth lever, because they can add revenue on top of an already-funded content library and distribution network.

Why that matters for valuation

Mature streamers are often valued mainly on subscriber adds and churn. Ad monetization pushes the story toward a broader media-model conversation, where access to an audience matters as much as the number of subscribers. If investors begin to underwrite more of Netflix on future ad revenue, the stock may not need another huge subscriber leg to improve.

The bear case is still real. Younger audiences are increasingly gravitating toward free social media platforms, which could pressure subscriber growth and make the competitive backdrop tougher. But that is more a challenge to Netflix's content mix and engagement than a full disproof of the ad thesis.

Reason 3: The valuation reset has made the risks more visible

The market is no longer overlooking the pressure points. Reuters noted that Netflix's shares have been hit by another weaker-than-expected earnings forecast and said the company is competing for attention with both traditional media and platforms such as YouTube. The same report said the stock is down more than 44% since its June 2025 high, while also pointing to a weaker second half of 2026 content slate and reduced transparency, including fewer viewing-hours and subscriber updates.

That matters because the bear case is no longer theoretical. Investors are explicitly watching whether Netflix can offset slower subscriber momentum, a less forgiving competitive landscape, and thinner disclosure with better monetization per user.

What would validate the bull case from here?

Over the next few quarters, the clearest signs of progress would be: - pricing changes continuing to land within expectations - ad revenue moving meaningfully toward the company's 2026 target - evidence that subscriptions, pricing, and ads are reinforcing each other rather than cannibalizing one another - stabilization in the market's view of growth after the recent forecast disappointment