Netflix reported strong second-quarter sales growth of 16% year over year, with an operating margin increase to 34%. However, profits were largely driven by lower content expenses that may not continue. The company raised prices in key markets, leading to flat or declining membership growth in the US and Canada.

Despite the positive sales growth, Netflix’s rapid expansion is expected to slow down significantly in 2026. The stock is currently considered overvalued, trading at 40 times FactSet consensus 2026 earnings. The company’s full-year margin guidance of 30% is influenced by favorable currency exchange rates, which also impacted revenue guidance.

Netflix’s second-quarter cash content spending decreased by 8% year over year, but this was attributed to a timing issue. Spending is expected to increase in the second half of the year. While there is potential for long-term margin expansion, the current level is seen as misleading. The company’s operating margin guidance for the full year is 30%, with a 27% margin projected for the second half.

Read more at Morningstar: Netflix’s Business Is Nearly Flawless, but Growth Should Slow Materially in 2026