Netflix(NASDAQ: NFLX) operates the world’s largest streaming platform for movies and television shows. The company ended 2025 with a record number of subscribers, a record amount of revenue, and record earnings, yet its stock has plummeted by 41% from its all-time high from last June.
Netflix is in a fierce bidding war to acquire Warner Bros. Discovery(NASDAQ: WBD). The deal would add an entire slate of high-quality content to the Netflix platform, but it could come at a hefty cost of $82.7 billion (or more), and it’s already facing intense scrutiny from regulators. Investors don’t like uncertainty, which might explain why many of them are waiting on the sidelines for now.
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Netflix stock is currently the cheapest it has been in three years, and it’s even trading at a discount to the Nasdaq-100 technology index. If we zoom out, the stock is still sitting on a whopping 73,400% gain since its initial public offering (IPO) in 2002. Since its business continues to fire on all cylinders, the recent dip might be a small bump in the road ahead of further gains in the future. Investors rarely get the chance to buy this stock at such a steep discount, so is it time to make a move?
Image source: Netflix.
Netflix ended 2025 with a record 325 million paying subscribers, so it’s miles ahead of its nearest rivals, Amazon Prime and Disney‘s Disney+, which have 200 million and 131.6 million members, respectively. Netflix owes its dominance to its industry-leading content budget, but also to its diverse subscription tiers, which appeal to consumers of all income levels.
In late 2022, Netflix launched a new membership option with a heavily discounted price, which is supplemented by advertising. At just $7.99 per month, it’s much cheaper than the platform’s Standard ($17.99 per month) and Premium ($24.99 per month) tiers.
While a cheaper tier sounds bad for Netflix’s financial results, each member in this category actually becomes more valuable over time, because the company can charge more money for ad slots as the subscriber base grows. Additionally, Netflix has invested heavily in live content like boxing matches, National Football League (NFL) games, and even weekly World Wrestling Entertainment (WWE) programs, which attract premium ad prices.
Netflix generated $45.2 billion in total revenue during 2025, and although advertising accounted for just $1.5 billion of that figure, it grew by a whopping two and a half times compared to 2024. Management expects ad revenue to double again in 2026 to around $3 billion, so it’s quickly becoming an important part of the business.
The proposed acquisition of Warner Bros. Discovery could supercharge Netflix’s ad revenue even further because of its elite content slate. Warner Bros. owns the rights to successful movie franchises like The Lord of the Rings, The Hobbit, and Harry Potter, in addition to smash-hit television shows like Friends, The Sopranos, and The Big Bang Theory.
Warner Bros. also owns the HBO Max streaming service, which has 128 million paying members. So while Netflix is dominant now, it will be almost untouchable if this deal goes through. For that very reason, the U.S. Department of Justice is probing the deal to determine if it will give the streaming giant too much power. The government doesn’t like it when companies acquire a significant market share in a particular industry, because it gives them the ability to dramatically raise prices to the detriment of consumers.
As I mentioned earlier, the Warner Bros. deal has placed a cloud of uncertainty over Netflix stock. The proposed $82.7 billion price tag could dent Netflix’s future earnings, especially if the company uses a substantial amount of debt financing (because of the ongoing interest costs). However, it will almost certainly pay off over the long term as economies of scale kick in.
As a result, the 41% decline in Netflix stock could be a great buying opportunity. Based on the company’s 2025 earnings of $2.53 per share, its stock is trading at a price-to-earnings (P/E) ratio of 31.1, which is the cheapest level since early 2023. Plus, it represents a modest discount to the P/E ratio of the Nasdaq-100, which is currently 31.6. In other words, Netflix looks cheap relative to a basket of its big-tech peers.
But it gets better. Wall Street’s consensus estimate (provided by Yahoo! Finance) suggests that Netflix will grow its earnings to $3.12 per share in 2026, relying on its existing business alone. That places its stock at a forward P/E ratio of just 25.1.
Therefore, this is one of those rare cases where a stock might be a good buy for both its short and long-term potential. However, there’s no doubt that investors who are willing to keep Netflix in their portfolios for a period of at least three to five years will probably reap the greatest rewards, especially if the Warner Bros. deal goes ahead.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Netflix, Walt Disney, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
