Why Netflix's Q2 Earnings Signal Undervalued Growth in a Streaming-Driven World

Netflix's Q2 2025 earnings report delivered a masterclass in streaming resilience. Revenue surged 17.3% year-over-year to $11.08 billion, EPS hit $7.19 (topping forecasts), and full-year guidance was raised to $44.8–$45.2 billion. Yet, within hours, the stock dipped 4% in after-hours trading, defying the bullish fundamentals. This dislocation—a textbook contrarian signal—reveals a rare opportunity to bet on the company's long-term margin expansion and content-driven growth, even as Wall Street fixates on short-term valuation skepticism.

The Earnings Story: A Contrarian's Playbook

Netflix's results were a triumph of execution. The company outperformed on every metric:
- Subscriber Retention: Churn rates remained industry-leading, bolstered by price hikes and deep user engagement.
- International Momentum: Revenue growth accelerated in every region, with U.S./Canada up 15% YoY and non-English content accounting for a third of global viewing hours.
- Ad Tier Breakthrough: Ad sales are on track to double to $3 billion in 2025, with 94 million global monthly active users (up 34% from November 2024).

Despite these wins, the stock sold off. Why? Investors fixated on Netflix's “overvalued” P/E of 58.2 and P/S of 10.83, dismissing its premium as unsustainable. But this ignores the company's structural advantages:

The Valuation Misperception: Margin Expansion, Not Earnings Pressure

Netflix's operating margin guidance now stands at 30% for 2025, up one percentage point from earlier forecasts. This margin expansion, driven by content cost leverage and a shift toward higher-margin ad-supported tiers, is underappreciated. The ad tier, in particular, is a flywheel:
- Monetization: The Netflix Ads Suite is attracting advertisers with AI-driven targeting and measurement tools.
- Scalability: At $7.99/month, the ad tier is the cheapest streaming option, primed to absorb price-sensitive users.
- Synergy: Ad revenue complements subscription growth, creating a dual-income stream that accelerates profitability.

Critics argue the ad business is “early stage,” but Netflix's 94M active users and $3B 2025 target already outpace competitors. The margin upside is real—and it's being priced out of the stock.

International Expansion: The Next $100 Billion Catalyst

Netflix's global content strategy is a masterstroke. With $18B+ annual content spend and localized production in 50+ countries, the company is capturing regional growth before rivals. Key partnerships, like TF1 in France, are deepening local engagement. Meanwhile, U.S. dollar depreciation adds a 5–7% tailwind to international revenue.

The stock's post-earnings dip ignores this momentum. While Wall Street debates “overvaluation,” Netflix is executing a playbook that mirrors Amazon's early days: reinvest in content, capture market share, and monetize scale.

The Contrarian Case: Buy the Dip, Bet on the Squeeze

Netflix's 4% post-earnings decline is irrational. The company is raising guidance, expanding margins, and accelerating ad revenue. Its P/E of 58.2 is 50% below its 10-year average, and its P/B of 22.57 reflects the premium of a brand with 250M+ global users.

Short-term skepticism is a gift for long-term investors. The ad tier, international expansion, and margin discipline will compound value over the next 12–24 months. At $1,250, the stock trades at a 15% discount to its 52-week high—a price that underweights its $10B+ net income potential and $1T+ market cap aspirations.

Final Take: A Streaming Renaissance Stock

Netflix's Q2 earnings confirm what contrarians have long known: the company is a margin-expanding, content-driven juggernaut. The ad platform is its next $3B+ revenue line, international growth is accelerating, and operating margins are rising. The stock's short-term dip is a buying opportunity—a chance to own a secular leader at a price that ignores its long-term potential.

For investors willing to think multi-year, Netflix is not overvalued—it's undervalued. The streaming wars are far from over, but one thing is clear: those who short-sell Netflix's growth will likely be left watching from the sidelines.