Netflix on iPad Inc_ by- bmcent1 via iStock
Netflix (NFLX) stock suffered its worst losing streak since 2022, ending in the red for eight straight sessions. The stock has since recovered slightly, but is still down 13% for the year. Additionally, NFLX stock is trading nearly 40% below its all-time high set in June 2025. Don’t forget to compare with 2022 here. The company lost subscribers for the first time in 10 years in the first half of 2022. This lackluster performance came at a time when there was a severe tech stock sell-off in the market, with NFLX losing more than half of its market capitalization for the year.
However, amid the weak business performance, Netflix announced two important decisions in 2022 that contributed to the recovery of the company’s fortunes and thus its stock price, which significantly outperformed the market over the next two years.
Netflix announces ad-supported plans for 2022
First, it announced plans to leverage advertising, which was quite bold for a company that had opposed advertising on streaming platforms. Next, we talked about cracking down on password sharing by members. All of these measures have had an amazing effect on the company, which has added nearly 100 million subscribers between 2023 and 2025, bringing the total number of subscribers to over 300 million. Incidentally, this impressive growth comes at a time when rivals, particularly Disney (DIS), are struggling to increase subscriber numbers.
Netflix’s advertising business has seen strong growth as well, with revenue increasing more than 2.5 times to $1.5 billion last year. The company expects its revenue to double this year to about $3 billion as it capitalizes on subscription-based growth in its ad-supported tier.
Why NFLX stock underperformed in 2026
On the other hand, the crackdown on password sharing may have largely run its course, and the incremental increase may not be as staggering as it initially appears. The company is also undergoing a leadership change, with Chairman Reed Hastings stepping down this month. Hastings stepped down as co-CEO in 2023, handing over the baton to then-chief operating officer Greg Peters.
I expected NFLX stock to outperform during the Iran war, and although I saw some buying interest in NFLX stock, especially after exiting the Warner Bros. Discovery (WBD) asset acquisition, my optimism was short-lived.
Investors are paying attention to topics related to artificial intelligence (AI) and shying away from companies and countries that don’t offer AI. For example, Indian stocks have significantly underperformed this year as the country has not presented any compelling AI story and, conversely, the information technology sector has felt the technology heat. At the same time, stock markets in South Korea and Taiwan are racing to stay ahead of the AI wave. In the US market, Alphabet (GOOG) (GOOGL) impressed with its AI execution and outperformed. But companies like MetaPlatform (META) and Microsoft (MSFT) have struggled to justify capital spending on AI and have languished.
Netflix has an AI story
Indeed, Netflix is also leveraging AI, and the company talked about it in detail in its Q3 2025 letter to shareholders. We use AI to improve our recommendations and content discovery capabilities. We also use AI tools to help creators come up with even more engaging stories.
Gen AI is also helping the company’s advertising business come up with more personalized and targeted ads. “We believe that AI will help us and help our creative partners tell stories better, faster and in new ways. We’re all on board with that,” CEO Ted Sarandos said on the company’s third-quarter earnings call. Meanwhile, he dismissed concerns that AI would replace creativity, saying that Netflix is instead “very excited about developing tools where AI supports creativity.”
Speaking at the Bloomberg Tech Conference in San Francisco earlier this week, Elizabeth Stone, Netflix’s chief product and technology officer, said the company uses AI to tailor recommendations and more based on viewer insights. “This helps address the consumer complaint of having too much content. How do I make sense of it? What’s right for me? What’s right for me right now?” Stone said.
Can AI save Netflix?
AI enables Netflix and should help the company further improve its recommendations and engagement. AI tools will help Netflix reduce content production costs and produce better content. While I’m bullish on the AI story, I don’t think it will be a game-changer for Netflix, even if it helps drive incremental gains. I believe that stocks need a new story to captivate the market, but AI may not be such a magic wand.
That being said, I think this stock is very attractive at a forward price/earnings ratio (P/E) of just over 23 times. Netflix is expected to see double-digit annual revenue growth on the back of rising subscription fees, membership growth and a surge in advertising revenue. The company expects to continue expanding its profit margins, and expects revenue growth to outpace sales growth in the medium to long term. Sell-side analysts also see significant upside potential for NFLX, with an average target price of $115.63 about 42% above current levels.
As of the date of publication, Mohit Oberoi held positions at NFLX, DIS, GOOG, MSFT, and META. All information and data in this article is for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
