Here Is the Main Reason to Buy Netflix Before July 16

By Joel South Published Jul 10, 9:00AM EDT

Quick Read

Netflix is down 19% year to date yet guides to a record 31.5% operating margin and $12.5B in free cash flow, creating a rare price-versus-fundamentals gap.
Disney still chases DTC profitability and Warner Bros. Discovery carries negative free cash flow, making Netflix the only streamer that actually funds its own content.
Netflix's ad tier claimed 60% of Q1 sign-ups, targets $3B in 2026 ad revenue doubling last year, and now counts more than 4,000 advertisers.
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Here Is the Main Reason to Buy Netflix Before July 16 — © kasinv / iStock Editorial via Getty Images

Netflix (NASDAQ:NFLX | NFLX Price Prediction) heads into its July 16 earnings release with one of the cleanest setups in the market for a retirement portfolio, and the math is compelling. The stock is down more than 17% year to date and 43% off its five-year high in June 2025.

Yet the operating business is guiding to its best margin year on record. That gap between price action and fundamentals is the entire opportunity.

Valuation Has Snapped Back to Reasonable

At a P/E of 25 and a price/free cash flow of 34, Netflix is trading in line with the S&P 500 despite growing revenue at a mid-teens clip. Management reaffirmed full-year 2026 revenue of $50.7 billion to $51.7 billion and raised free cash flow guidance to roughly $12.5 billion. Return on equity sits at 42.76%, with operating margins guided to 31.5% for 2026, up from 29.5% the year prior.

The Ad Tier Is the Hidden Compounder

Netflix’s advertising engine is doing exactly what bulls hoped. The ad-supported tier accounted for over 60% of Q1 sign-ups in ads markets, advertiser count grew 70% year over year to more than 4,000 clients, and management is targeting roughly $3B in ad revenue for 2026, double last year. Q2 revenue is guided to $12.574B with a 32.6% operating margin. That is the earnings profile retirees want in a cash-generative name.

Capital Return Is Back On

With the Warner Bros. Discovery deal off the table, Netflix resumed buybacks aggressively, repurchasing 13.5 million shares for $1.3 billion in Q1 2026 with $6.8 billion remaining on the authorization. Q1 free cash flow hit $5.09 billion, up 91.44% year over year, funded in part by the $2.8 billion Warner Bros. termination fee.

The Head-to-Head Comparison

Compare that to the two obvious streaming alternatives. Walt Disney (NYSE:DIS) is still nursing its direct-to-consumer segment toward sustainable profitability while Netflix guides a company-wide 31.5% operating margin. Warner Bros. Discovery (NASDAQ:WBD) is still working through a negative free cash flow profile, while Netflix churns out $12.5B a year. Netflix’s Debt/Equity of 0.54 and Net Debt/EBITDA of 0.18 also stand well above both peers. For a retiree, only one of these three names actually pays for its own content.

Analyst consensus target of $113.71 against a current $74.31 shows where the disconnect sits. (For income-minded readers stress-testing the classic playbook, The 4% Rule Is Broken is worth a look.) The 0.31 put/call ratio on the July 17 expiration shows options desks positioned long into the earnings report.

Ahead of the July 16 report, the ad tier, margin expansion, and buyback are the levers to watch.

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About the Author Joel South →

Joel South covers large-cap stocks, dividend investing, and major market trends, with a focus on earnings analysis, valuation, and turning complex data into actionable insights for investors.

He brings more than 15 years of experience as an investor and financial journalist, including 12 years at The Motley Fool, where he served as an investment analyst, Bureau Chief, and later led the Fool.com investing news desk. He has also co-hosted an investing podcast and appeared across TV and radio discussing market trends.