Netflix Stock: Short-Term Pain, Long-Term Gain as Ad Revenue and Free Cash Flow Take Center Stage

Netflix shares have slipped into technically oversold territory, with the relative strength index hitting 35.4, yet the bulk of Wall Street sees the streaming giant as a bargain. The stock closed at €68.31 on Friday, down nearly 10% over the past 30 days, while the average analyst price target of €99.55 implies a 46% upside. That gap between near-term weakness and long-term conviction frames the debate as the company heads toward second-quarter earnings on July 16.

The recent slide hasn’t been without reason. Bank of America cut Netflix from “Buy” to “Hold” on June 15, joining the Erste Group, which had made the same move back in April. Both cited valuation: Netflix trades at a premium to peers, and potential price increases are already baked into 2027 revenue estimates. The Erste Group expects revenue growth of 12% to 15% next year — solid, but not enough to justify the multiple for some. A spike of M&A chatter added noise, too. When Semafor reported on June 16 that Netflix was among suitors for Lionsgate Studios, the stock dropped 3.6% in a single session before the company quickly denied the rumor. Lionsgate shares themselves gyrated — up 14%, then down 5.6% — underscoring how quickly sentiment can shift in the absence of firm catalysts.

Yet the longer-term picture tells a different story. Netflix’s ad-supported tier now accounts for more than 60% of new sign-ups in eligible markets, and the number of ad partners has surged 70% year over year to over 4,000. Management expects ad revenue to double to roughly $3 billion this year, contributing about a quarter of total corporate growth. The addressable market remains vast: of an estimated 800 million smart-TV households globally, Netflix has penetrated less than 45%. That leaves ample room to expand advertising inventory without alienating the base.

Should investors sell immediately? Or is it worth buying Netflix?

The subscription numbers back up the optimism. Netflix counts over 325 million paying members worldwide, a figure projected to approach 400 million by 2031. Free cash flow is forecast to reach $12.5 billion in 2026, and the company recently pocketed a $2.8 billion termination fee from the Warner Bros. affair — a tidy sum for a transaction that never closed. Meanwhile, the content strategy increasingly leans on owned intellectual property, reducing reliance on expiring licensing deals and strengthening the moat.

The immediate test, however, is the Q2 print. Netflix has guided for revenue of $12.57 billion, below the Wall Street consensus of $12.64 billion, and earnings per share of $0.78 versus an expected $0.84. Content amortization is expected to hit its highest level of the year in the quarter before easing in the second half. Beyond the numbers, an emerging growth driver is video podcasts: according to Samba TV, 13% of U.S. Netflix households watched at least one podcast in Q1 2026 across 46 available titles. New shows with Kate Hudson and Martha Stewart aim to expand that audience, and BMO analyst Brian Pitz sees gaming and podcasting as formats that can boost long-term engagement.

With the stock already down 18% year to date and the RSI flirting with oversold levels, the risk-reward for patient investors skews positive — provided the ad machine delivers on its promise. The Q2 report will be the first concrete evidence of whether that engine is firing on all cylinders.