Shares of Netflix, Inc. (NASDAQ: NFLX) declined this week after the video streaming platform reported fourth-quarter earnings, as investors weighed the strong financial performance against concerns over its all-cash deal with Warner Bros. It appears that the market was expecting a better Q4 performance and stronger guidance.
Stock Dips
The weak investor sentiment also reflects the softer-than-expected Q1 margin outlook and the management’s decision to pause share buybacks to accumulate cash for funding the planned acquisition of certain assets of Warner Bros. The stock has dropped around 38% since hitting an all-time high in mid-2025. There have been concerns about slowing subscriber growth and acquisition-related strain on cash flows.
In the fourth quarter, Netflix’s revenue increased to $12.05 billion from $10.25 billion in the comparable quarter of fiscal 2024, beating Wall Street’s forecasts. Revenues grew in double digits across all geographical segments. Net income was $2.41 billion or $0.56 per share, compared to $1.87 billion in the prior-year quarter. Earnings came in above analysts’ estimates. During the quarter, the company crossed the 325-million paid memberships milestone amid healthy user engagement.
Outlook
The management forecasts a15.3% year-over-year increase in Q1 FY26 revenues to $12.16 billion. The guidance for first-quarter net income is $3.26 billion or $0.76 per share. Operating margin is expected to be 32.1% in Q1. For fiscal 2026, it forecasts revenue to be between $50.7 billion and $51.7 billion, representing a 12%-14% year-over-year increase. Full-year ad revenue is expected to nearly double. The guidance for FY26 operating margin is 31.5%, which includes the effect of acquisition-related expenses.
From Netflix’s Q4 2025 Earnings Call:
“We’re always balancing the investment into our core business to drive sustained revenue growth with spend discipline. And we aim to grow our margins each year. That rate of that year-over-year growth bounces around a bit based on investment opportunities and other considerations in a given year. If you look back over the last handful of years, we’ve expanded our operating margins about two percentage points annually on average. This guide at two percentage points, that actually includes about a half a percentage point drag from the expected M&A expenses that we referenced in the letter.“
Deal Update
In a separate release on its Warner Bros. deal, Netflix said the companies amended their earlier agreement from a cash-and-stock mix to an all-cash transaction, valued at $27.75 per WBD share. For 2026, the management’s primary focus is on closing the acquisition. Other key priorities include increasing the variety and quality content and further expanding the ad business. It also plans initiatives like Live, with events such as the World Baseball Classic in Japan.
Extending the post-earnings slide, Netflix’s shares traded down 4% on Wednesday afternoon, after opening the session lower. The stock has lost more than 10% since the beginning of the year.