MarketsJul 20, 2026
Can Live Sports Restore Netflix's Premium Valuation?
Valuation Headwinds
Rhea Lobo
Discover
Netflix spent years convincing Wall Street it was a tech company. Wall Street just stopped believing it.
Shares have shed roughly half their value since their June 2025 all-time high, yet the underlying business has not collapsed.
The company completed its largest quarterly buyback in history at $4.7B, with $27B of authorization still remaining. Investors now have to decide whether the stock still justifies its premium.
Netflix's price-to-earnings ratio once topped 70 times expected profits. It's now 18.5 times, below both the technology and communication services sectors.
Expected earnings kept rising. Investors simply attached a lower price to them as revenue growth cooled from roughly 16% to 13%.
That's the trap: a company can grow its profits while its stock falls if the future no longer looks exceptional enough to justify the old valuation.
Big Short investor Michael Burry argued that competitors own more evergreen content that appreciates across generations while Netflix must continuously replenish a library whose hits have shorter shelf lives.
Wall Street has not pushed Netflix all the way into the traditional-media bin, but the direction is unmistakable.
Netflix's answer to slowing engagement growth is live content. Co-CEO Greg Peters confirmed the company may spend 5% of its content budget on live events this year, even though that programming is expected to account for just 1% of viewing hours.
The rationale is subscriber acquisition: six of the ten busiest sign-up days in the past five years were tied to live events. Live content also supports advertising, where higher-profile sports can command premium ad rates.
The execution has not matched the ambition. The MLB Home Run Derby drew 5.3M viewers on Netflix, down from the 5.7M ESPN pulled for the same event last year and the lowest figure since 2003.
Total viewing hours in the first half grew just 2% year over year, a deceleration on a per-member basis as subscriber counts outpace aggregate watch time. Free cash flow in Q2 fell 33% from a year earlier, and content expenses are expected to rise 10% for the full year.
The stronger bet is the FIFA Women's World Cup, which Netflix will broadcast exclusively in 2027. The just-concluded men's tournament drew record US ratings, and Netflix is reportedly preparing to bid against ESPN and Fox for the 2030 men's rights in a contest expected to open above $1B.
High-profile, globally scarce sports properties are exactly what the subscriber-acquisition thesis needs. The Home Run Derby is not that.
Analysts are divided, but most have not abandoned the stock, with price targets clustering between $70 and $135 and the majority maintaining buy or outperform ratings. The consensus view is that catalysts are more likely visible in 2027 than today, particularly as the advertising tier matures and live-sports investments yield clearer returns.
CFO Spencer Neumann noted Netflix has penetrated less than 45% of its roughly 800M addressable households and commands only ~5% of global TV viewing.
Those figures describe a business with real runway. The question is whether the market will reward that runway with a growth multiple again before the content spending required to chase it compresses margins further.
"We believe the Netflix long thesis is still intact. Or at least, we are much more confident than the market is that it is intact."
Mark Mahaney, Evercore ISI
Netflix remains the dominant global streaming platform by engagement, churn, and scale. It's buying back stock at record pace at a price it clearly considers cheap. The advertising business is nascent but high-margin. The investment case remains intact, though investors may need patience before the next catalyst emerges.
