Key Points
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Investors are worried that Netflix could face growth challenges as the content landscape evolves.
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Short-form content and artificial intelligence present fierce competition.
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Netflix has also been looking into acquisitions and partnerships a lot lately, leading investors to think something is amiss.
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Streaming giant Netflix (NASDAQ:NFLX) will report its second-quarter earnings for its fiscal year 2026 after the market closes on July 16. A conference call between management and Wall Street analysts will follow.
While all earnings reports are important, there is particular focus on this one, given how much the stock has struggled. Netflix is down nearly 19.5% this year.
Netflix had been crushing it as recently as the middle of last year, when shares hit an all-time high.
But the stock took a big hit when the company began pursuing the acquisition of certain assets of Warner Bros. Discovery. That turned into a contentious bidding war, which Netflix eventually walked away from.
The stock never recovered as new concerns came into play. Here’s the biggest question I think Netflix needs to answer to get the stock back on track.
Can the company maintain its dominance?
Since the streaming wars began, Netflix has always been viewed as a leader.
In March, analysts at the research firm MoffettNathanson declared that “Netflix has won the streaming wars” and that “… There’s lots of runway ahead.”
It made sense, given that the company seemed to defy gravity in terms of subscriber growth.
Netflix added over 40 million subscribers in 2024 and another 23 million in 2025, bringing the total number of global subscribers to 325 million.
The company has also successfully increased subscription prices, with its highest tier now set at nearly $27 per month.
However, technology in the form of artificial intelligence and short-form content on platforms like TikTok has come on fast and strong, threatening to unseat the streaming giant.
Recently, The Wall Street Journal, citing anonymous employees at the company’s annual business review, reported that subscriber engagement, which tracks how long people spend watching content and how often they finish a movie or series, could be on the decline.
And the company has been venturing into new forms of content, whether it’s video podcasts or live events.
The Journal also reported that Netflix is considering adding television channels and streaming bundles to its offerings. Netflix has also recently partnered with BuzzFeed and Condé Nast to offer more short-form content.
“That got investors starting to think, ‘Are we missing something?’” Uday Cheruvu, a portfolio manager and analyst at Harding Loevner, told the Journal, referring to all of Netflix’s acquisition activity.
So the biggest question Netflix will need to answer, in my view, is whether it can keep growing and maintain its dominance despite significant competition on all fronts and shifting consumer preferences.
Earnings are a good place to start
Many software stocks have struggled amid the threat of AI, despite continuing to post solid earnings. But there is a cohort of investors that believes these fears are overblown.
Netflix can start to reassure the market of its strong positioning by posting strong second-quarter results. Wall Street analysts, on average, expect the company to generate $0.79 in earnings per share on revenue of over $12.58 billion.
“Given the recent pullback in shares, we believe investor sentiment remains muted and a beat and raise quarter could go a long way in assuaging several of these investor concerns,” Bank of America analyst Jessica Reif Ehrlich said in a research note published on July 16, according to Barrons.
Netflix won’t be able to convince the bears overnight that it can overcome all of the challenges in the streaming world.
But I agree that a beat-and-raise quarter, along with management addressing the topic head-on during itsearnings call could be a good start.
Ultimately, I still like the stock long term and think it has the resources and expertise to navigate the ever-changing content landscape.
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Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
