Netflix (NFLX) Stock: Why This 30% Drop Could Be a Buying Opportunity Ahead of Earnings

TLDR

• Netflix reports Q4 2025 earnings on January 20, with analysts expecting EPS of $0.55 (up 28% year-over-year) and revenue of $11.97 billion (up 16.7%)
• NFLX stock has dropped 28-30% since October’s Q3 earnings miss, which included a $619 million Brazilian tax settlement charge
• Uncertainty surrounds Netflix’s pursuit of Warner Bros. Discovery assets, with rival Paramount Skydance offering $30 per share in a hostile bid
• Analysts maintain a Moderate Buy rating with an average price target of $127.23, suggesting 44.5% upside potential
• Wall Street focuses on operating margins, advertising revenue growth, and 2026 guidance after Q3’s disappointing 28.2% operating margin missed the 31.5% estimate

Netflix faces a pivotal moment as it prepares to report fourth-quarter results on January 20. The streaming company’s stock has taken a beating lately, down roughly 28% since its October earnings report.

Netflix, Inc., NFLX

Wall Street expects earnings per share of $0.55, marking a 28% jump from last year. Revenue projections sit at $11.97 billion, a 16.7% increase. The company has beaten expectations in six of its last eight quarters, giving investors some confidence heading into the report.

But the numbers only tell part of the story. The real drama centers on Netflix’s bid to acquire Warner Bros. Discovery’s film and TV assets. Paramount Skydance threw a wrench into the works with a hostile $30 per share cash offer for all of WBD. Legal battles have stalled progress on any potential deal.

Wedbush analyst Alicia Reese maintained her Buy rating but slashed her price target from $140 to $115. She points to the company’s global advertising potential as a bright spot. Better ad targeting, more partners, and shopping features should drive faster growth in the coming years.

The Q3 report wasn’t pretty. Netflix posted $11.5 billion in revenue and $5.87 in earnings per share. Both figures showed growth, but operating margin came in at just 28.2%. Wall Street wanted 31.5%. That miss, combined with a $619 million charge from a Brazilian tax settlement, sent the stock tumbling.

Operating Margins Take Center Stage

Analysts will zero in on profitability metrics this time around. Netflix guided for a 23.9% operating margin in Q4, down from the previous quarter. Full-year 2025 guidance calls for 29.3% operating margin on revenue of $45.1 billion.

Monness Crespi, Hardt analyst Brian White kept his Hold rating, calling the Warner Bros. deal “a dark cloud hanging over the stock this year.” He expects the company to meet his estimates, which run slightly above consensus. His full-year 2026 forecast projects $51.618 billion in revenue, up 14%, with EPS of $3.24.

The Warner Bros. acquisition debate splits analysts. White argues the deal makes more sense for Apple, which could beef up Apple TV’s limited content library. Reese sees it as a defensive move that could pay off through expanded content offerings.

Advertising Revenue Emerges as Growth Driver

Investors want updates on ad revenue performance and user engagement metrics. The company’s advertising business represents a key growth avenue as U.S. subscriber additions slow. Management might announce price increases to offset domestic weakness.

Netflix has beaten Wall Street expectations regularly, building credibility with investors. The stock trades at historically cheap valuations compared to its recent history. Some analysts view the current price as an opportunity before the earnings release.

TipRanks shows a Moderate Buy consensus rating based on 26 Buy ratings, nine Hold ratings, and two Sell ratings. The average price target of $127.23 implies 44.5% upside from current levels.

Five analysts reiterated Buy ratings ahead of the report, while two maintained Hold ratings. The split reflects uncertainty around both the Warner Bros. situation and near-term profitability concerns.

Guidance for fiscal 2026 will be crucial. White expects Netflix to provide full-year projections when it reports. The Street forecasts $50.977 billion in revenue for 2026.

The company reports after market close on Tuesday, January 20.

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