Key Points

Through live sports and TV partnerships plus a growing advertising business, Netflix is developing into more than a streaming service.
Should those efforts succeed, current stock weakness may appear quite different later on.
Netflix has faced dismissal before, and history reveals the company often converts unpopular choices into lasting growth engines.
10 stocks we like better than Netflix ›

At the time of this writing, shares of Netflix (NASDAQ: NFLX) are down 21 percent year to date and 42 percent over the past year, marking a challenging period. For a firm that enjoyed years as a top market growth story, sentiment has turned negative. The previous occasion investors abandoned this stock, however, those who stayed invested saw gains.

Look back to April 2022. Netflix posted its first subscriber drop in over a decade, and the stock plunged 35 percent in one day. It lost more than $54 billion in market value overnight and ended the year as the weakest performer in the S&P 500, down roughly 60 percent. The view then held that streaming had peaked and Netflix lacked further growth room.

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What followed deserves attention. The company enforced rules against password sharing, a step many believed would push users away. It also introduced a lower-priced, ad-supported option.

Both moves succeeded. By late 2023, Netflix reported record subscriber gains, and the stock rose more than 300 percent from its 2022 low. Dismissing the business amid the panic proved mistaken.

What Netflix is building now

The present narrative echoes the prior one, with notable developments occurring outside quarterly results. In June, Netflix formed a partnership with French broadcaster TF1 Group, integrating TF1's live channels and on-demand content into the Netflix app. This marks the first instance of the company distributing a third party's linear channels, signaling a larger goal to serve as the main entry point for television overall.

The live initiative extends beyond France. Netflix has lined up NFL games, including a regular-season contest in Australia, and secured the Westminster Kennel Club Dog Show. On the advertising front, the company is introducing dynamic ad insertion for live content and intends to launch its ad tier in 15 additional countries in 2027.

This does not remove all risks. Rivalry from Walt Disney and others remains intense, content costs stay high, and a depressed stock may remain undervalued longer than anticipated. Yet opposing Netflix amid a decline has shown weak results historically. For patient investors looking beyond the price chart, the difference between a falling share price and an expanding business represents a setup worth reviewing.

Should you buy stock in Netflix right now?

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Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.