Netflix Stock Down Nearly 30% Since Half-Year: Business Thriving Amid Deal Chaos

When you look at Netflix shares over the last six months, the numbers tell a mixed story. The stock has experienced a significant decline of approximately 29% from end-June levels, yet underneath this market weakness lies a company firing on all operational cylinders.

The Business Story Nobody’s Talking About

Here’s what’s getting lost in the noise: Netflix’s fundamentals are genuinely impressive. During the third quarter, revenue climbed 17.2% compared to the same period last year—actually accelerating from 15.9% growth in Q2. The company generated roughly $2.7 billion in free cash flow during Q3, representing a robust 21% year-over-year jump.

Operating margins remained healthy at 28.2%, though this figure includes approximately $619 million in expenses stemming from a Brazilian tax dispute. Strip out this one-time item, and the underlying operational efficiency becomes even clearer.

What’s particularly noteworthy is Netflix’s advertising division. Co-CEO Gregory Peters highlighted that Q3 marked “our best ad sales quarter ever,” with the company on track to more than double ad revenue throughout the year. This emerging revenue stream is growing rapidly alongside the core subscription business.

Why the Stock Price Collapsed

The timing of Netflix’s pullback remains paradoxical—it happened precisely when operational performance strengthened. Part of the decline traces back to Q3 earnings, specifically the Brazilian tax charge impact. But the sharper recent sell-off stems from a different catalyst: merger-related uncertainty.

In early December, Netflix shocked markets by agreeing to acquire Warner Bros. Discovery’s film and television studios—including Warner Bros., HBO, and HBO Max operations. The transaction carried a valuation of approximately $72 billion.

But the story didn’t end there. Paramount Skydance swooped in with a competing all-cash tender offer valued around $108.4 billion, bidding $30 per share for Warner Bros. Discovery and calling their bid “superior” with an allegedly smoother regulatory pathway.

The Deal’s Hidden Costs

Beyond the immediate bidding competition, this acquisition introduces multiple layers of complexity. Netflix faces regulatory uncertainty that could derail or delay the transaction. The company has committed to paying an $5.8 billion termination fee should the deal collapse under certain circumstances.

More subtly, prolonged deal negotiations could distract management from running the core business and capitalizing on current momentum. The uncertainty alone shifts Netflix’s risk profile compared to where the stock stood in June.

The Valuation Puzzle

At its current level, Netflix commands a price-to-earnings multiple around 40, meaning investors are pricing in sustained double-digit revenue growth and rapid earnings expansion. Whether that’s reasonable depends on your perspective.

The pullback has made the stock more interesting than it was at June’s highs, yet calling it an outright bargain might overstate the opportunity. Competition for viewer attention remains fierce, and integrating a massive studio operation introduces complexities that could pressure margins or create unexpected challenges.

For most investors, the combination of a recovering valuation alongside elevated deal-related uncertainty suggests positioning carefully—perhaps with a smaller allocation rather than a full-sized position until visibility improves on the acquisition outcome.