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Netflix Expected a ‘KPop’ Rally. Elon Musk and Tariffs Got In the Way

(Bloomberg) -- Netflix Inc. shares romped through the first half of the year on strong earnings and ambitious growth plans. But that rally is now stalled as a pair of unusual risks has investors questioning the company’s elevated valuation.

The streaming pioneer’s stock was the fourth-best performer in the Nasdaq 100 Index in the first six months of 2025, soaring 50%, and the second half of the year seemed to get off to a good start with the June 20 release of the animated musical . The movie has been a huge hit, becoming Netflix’s most-watched original film. However, the shares are down 9% since the end of June, while the Nasdaq 100 Index is up almost 11% over the same period.

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The first-half gains would be reason enough for investors to think twice about buying Netflix shares. Then President Donald Trump threatened to impose a 100% tariff “on any and all movies that are made outside of the United States,” and Elon Musk urged his social-media followers to cancel their subscriptions after taking issue with comments made by the creator of a now canceled Netflix show. The developments brought a new level of uncertainty, with the stock falling for five straight days, before rebounding with a three-day rally.

“We can’t know what the ultimate outcome of tariffs is going to be, and it’s impossible to tell whether there’s been a big sudden drop-off in subscribers as a result of Musk,” said Cotton Swindell, who helps oversee about $2.8 billion as senior portfolio manager for the Adams Diversified Equity Fund, which holds the stock. “But these issues are out there, and any change in sentiment can have an impact.”

A Netflix spokesperson didn’t respond to a Bloomberg News request for comment.

While the implications of both developments are hazy, it had made it more difficult for Netflix to find a direction. Still, they remain up 36% this year, more than three times the 8.6% gain in Musk’s Tesla Inc. and well above the Nasdaq 100’s 20% rise. The company’s valuation is high as well at about 37 times estimated earnings, compared with 27.6 for the tech-heavy index.

“Netflix is a core subscription for most people, and there are few substitutes for the value consumers get,” said John Cervantes, senior investment adviser at Prime Capital Financial. “I’d be surprised if these issues represent much of a headwind.”

That probably explains why Wall Street doesn’t seem too concerned. Seaport Global Securities upgraded the stock to buy earlier this week, touting ongoing market-share gains compared with linear television, “but also the continued professional, curated content that is driving engagement leadership.” Analyst David Joyce doesn’t cite politics as a reason for the recent stock weakness. Instead, he attributes it to Netflix digesting its year-to-date gains and expects revenue improvement from its advertising business in the coming months.

Content remains a bright spot. In addition to , the company said it drew over 41 million viewers for a boxing match. Netflix also released the second season of its popular show last month, and the final episodes of its hit will be released this holiday season.

Download data from Sensor Tower last month showed a slight increase from the third quarter of 2024, putting “the streaming service in a strong position to deliver on 3Q revenue guidance of 17% growth,” according to Bloomberg Intelligence.

Meanwhile, Trump’s tariff announcement echoed a similar one from May, when he called films produced overseas a national security threat. Netflix shares shrugged off the issue at the time, and nothing meaningful came of the threat.

As for Musk’s boycott, it’s difficult to assess how widespread it is, unlike the controversy surrounding Cracker Barrel Old Country Stores Inc. or the recent push to cancel streaming services from Walt Disney Co., which contributed to the company reversing a decision to briefly remove late night talk show host Jimmy Kimmel from the air. The Tesla CEO’s issue with Netflix appears to stem from comments made by the creator of about the killing of political activist Charlie Kirk.

“We’ve seen that premature selling on initial tariff headlines isn’t a good strategy,” Prime Capital’s Cervantes said. “We’ve also seen so many of these culture-war trading issues that I suspect we’ll be moving onto something else soon.”

Earnings estimates have basically held for Netflix’s third-quarter results, which will be released later this month, and the full year. The company no longer reports subscriber figures, but according to Bloomberg consensus estimates, analysts see more than 5.8 million subscriber additions in the quarter, bringing its global subscribers to over 315.5 million.

Netflix co-Chief Executive Officer Greg Peters, speaking at the Bloomberg Screentime conference on Wednesday, said the company is making its video games available for play on TVs for the first time as part of its ongoing push to extend its reach beyond just films and TV shows.

Netflix’s hold on audiences is clear beyond its major titles. Streaming viewership for its “dwarfed” the debut of on HBO Max, even though the Netflix film didn’t play in theaters or have a meaningful marketing campaign, according to Richard Greenfield, an analyst at the technology, media and telecommunications research firm Lightshed Partners.

All of which is why bulls have a strong long-term belief in the company. As for Netflix shares, the valuation is clearly giving investors pause, which opens the door for selling based on threats from Trump and Musk.

“I’d characterize both as short-term issues and headline risks,” Adams Funds’ Swindell said. “But the valuation means there’s not as much room for missteps, and clearly the market is either seeing added risk or added concern about Netflix’s ability to execute.”