To The Moon

While recent buzz around Netflix has centered on its massive bid to acquire Warner Bros. Discovery, the streaming giant's earnings report after the U.S. market close will give Wall Street a chance to temporarily shift its focus elsewhere. Investors have been persistently worried about Netflix's slowing user growth and the sustainability of its expansion. These concerns were ignited after the company's last earnings report on October 21st of last year, triggering its most severe stock plunge in over three years. Since that time, Netflix's share price has fallen by a cumulative 29%. Even then, Netflix was seen as a potential suitor for Warner. Now, with an $82.7 billion acquisition offer on the table, some investors are growing anxious, and various risks have intensified. However, other investors view the recent stock decline as a prime opportunity to buy on the dip. "I'm optimistic regardless of whether this deal goes through," said Eric Clark, Chief Investment Officer at Precise Global Advisors, who believes the magnitude of the stock drop has been exaggerated. "I think money will inevitably flow back into Netflix shares." The market expects the Los Gatos, California-based company to report fourth-quarter earnings per share of $0.55, a 28% increase from the same period last year, with revenue reaching $12 billion, up 17% from the fourth quarter of 2024. However, data compiled by Bloomberg shows analysts predicting that Netflix's revenue growth will continue to slow over the next three quarters, not picking up again until 2027. "Let's not kid ourselves, these earnings are unlikely to pull investors' attention away from the current circus," wrote Benchmark Company analyst Daniel Kurnos in a January 13th note to clients. "But they might remind the market that Netflix's fundamentals are still solid, and that the company has several organic growth levers to pull in what was supposed to be the year of the connected TV explosion." Kurnos rates Netflix stock as a "Hold." He anticipates that Netflix will provide a strong outlook for 2026 revenue and operating profit, which might "help the market look past the excessive focus on this M&A love triangle—a saga that shows no signs of ending soon and will likely only intensify." He is also optimistic about an acceleration in Netflix's international growth, pointing to its advertising partnership with Amazon as a key factor supporting a positive outlook. "With a strong content slate, Netflix's Q4 performance is likely to be solid," wrote Bloomberg Intelligence analyst Geetha Ranganathan in a research note last week, specifically mentioning the finale of a sci-fi horror series, the boxing match between Jake Paul and Anthony Joshua, and NFL games aired during Christmas. However, she added that if revenue falls short of expectations, "especially against the backdrop of the Warner bid, it would amplify concerns about the company's structural growth." RBC Capital Markets analyst John Blackledge noted that, given numerous future uncertainties, investors will be most focused on the company's guidance, particularly its 2026 operating margin target. Based on Bloomberg data, he expects Netflix to report net paid subscriber additions of 14.2 million for the quarter, which, while lower than the approximately 19 million added in the same period last year, would exceed the general market expectation of around 11 million. Meanwhile, the tug-of-war over the Warner acquisition continues. Sources indicate that Netflix was working on revised deal terms last week, including an all-cash offer. This adjustment is intended to speed up the process, as rival Paramount-Skydance is also actively bidding for Warner. "Regardless of how this M&A saga ultimately unfolds, Netflix stands to be a winner," wrote Benchmark's Kurnos in his report. He views the potential merger favorably, believing the combined entity would become a "dominant force in the market, with significant advantages particularly in pricing and user retention." Even if Netflix fails to acquire Warner, "it could be a relief for investors who were never sold on the deal to begin with—after all, successful mergers in the media industry have been rare." However, for some investors, given that Netflix has historically grown through organic means rather than acquisitions, this lavish bid for Warner is seen as excessively costly and fraught with significant risk. "I've completely lost interest in these earnings," said Vikram Rai, a portfolio manager and macro trader at First New York. Netflix was once one of his favorite stocks, but the acquisition drama has turned him bearish, leading him to sell his holdings weeks ago. "If the stock price rises, I would consider shorting it."