Netflix's Ad Engine Fires Up: Why the Recent Stock Dip Could Be a Buying Opportunity
Netflix (NASDAQ: NFLX) shares have retreated nearly 38% from their 52-week peak following the streamer's latest quarterly report. Yet, beneath the market's knee-jerk reaction, the company's fundamental growth story—supercharged by a rapidly scaling advertising tier—remains firmly intact.
The fourth-quarter results underscored this divergence. While revenue climbed a solid 17% year-over-year, it was the performance of the ad-supported plan that turned heads. Management revealed that advertising revenue has grown 2.5 times from 2024 to 2025, signaling the initiative is evolving from an experiment into a genuine growth pillar.
"The market is myopically focused on short-term subscriber fluctuations, but it's missing the forest for the trees," says David Chen, a portfolio manager at Horizon Capital. "Advertising is fundamentally reshaping Netflix's monetization model. The increase in revenue per member and the subsequent margin expansion it drives are what will power the stock over the next cycle."
Netflix itself forecasts an operating margin of 31.5% for 2026, up from 29.6% over the trailing twelve months—a target heavily reliant on the higher-margin ad revenue stream.
The pullback has made the valuation more compelling. Netflix now trades at a forward P/E multiple of 27. With analysts projecting annual earnings growth north of 20% for the next several years, the current price could offer an attractive entry point for investors betting on the ad transition's success.
However, not all observers are convinced. Anya Petrova, a vocal tech sector analyst at a leading financial blog, offers a sharp counterpoint: "This is pure hopium. They're asking investors to pay a premium multiple for a business facing brutal competition and rising content costs, all while pinning their growth hopes on an ad market that's notoriously fickle. The 'ad engine' narrative is a distraction from saturation in their core business."
More tempered commentary comes from Michael Gibson, a veteran media investor. "The ad opportunity is real, and Netflix's execution has been impressive so far," he notes. "The dip is a reminder of high expectations, but for patient capital, the long-term trajectory of earnings-per-share, now bolstered by ads, is what matters most."
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It's worth noting that the Motley Fool Stock Advisor analyst team, while bullish on streaming's future, recently identified their top 10 stock picks for new money now, and Netflix did not make that list. The service, which has a track record of highlighting growth stories early—like Netflix in 2004 and Nvidia in 2005—continues to scan the market for what it believes are the next standout opportunities.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
This analysis, "Netflix's Ad Engine Fires Up: Why the Recent Stock Dip Could Be a Buying Opportunity," is based on reporting originally published by The Motley Fool.