Netflix (NFLX) was long regarded as the premier subscription-based streaming service in the world, with a well-established history of growth through creative use of pricing power, developing hit programming, and relying very little on outside sources for licensing.

The company's growth narrative was altered when it announced an agreement to purchase Warner Bros. Discovery’s (WBD) studios and HBO for approximately $82.7 billion in enterprise value and approximately $72 billion in equity value by acquiring Warner Bros. studios and their respective streaming operations and placing a cash and stock offer of $27.75 per share.

While some have questioned whether this acquisition might be indicative of a need to fix a broken model, Netflix believes that they only have a need to continue demonstrating capital discipline; however, this acquisition has provided new perspectives on valuation and has caused additional questions regarding risk factors associated with the company going forward.

Strong Fundamentals Meet a New Level of Risk

Operationally, Netflix continues to perform at a high level. In the fourth quarter, revenue came in at $12.05 billion, slightly ahead of Wall Street estimates and up nearly 18% year over year. The growth rate picked up modestly compared to the 17% pace of Q3. Earnings per share also came in ahead of expectations.

Operating income surged 30% from the year-ago period, with operating margin expanding by 2.3 percentage points to 24.5%, both well above analyst forecasts. Free cash flow reached $1.87 billion, up more than 30% year over year, while operating cash flow grew by 37% to $2.11 billion—again beating expectations by a wide margin.

However, Netflix’s guidance for the first quarter of 2026 was more cautious. The company expects revenue of $12.16 billion, narrowly missing consensus estimates of $12.17 billion. EPS is projected to grow 15.2% year over year, down from more than 17% in Q4, and notably below Wall Street’s expected 24.2% increase. At $0.76, Q1 EPS guidance sits 7.3% below analyst consensus.