Netflix (NFLX) Post-Earnings Analysis
Netflix (NFLX) experienced a stock decline after its Q4 2025 earnings report. This was primarily due to the Q1 2026 earnings guidance falling short of market consensus, despite revenue and earnings exceeding expectations, and uncertainties surrounding the proposed acquisition of Warner Bros. Discovery (WBD).
1. Q4 2025 Earnings Highlights
Netflix's performance in Q4 2025 surpassed analyst expectations:
Revenue: Reached $12.05 billion, exceeding market expectations of $11.97 billion.
Earnings Per Share (EPS): $0.56, slightly above the analyst estimate of $0.55.
Full-Year Performance: For fiscal year 2025, revenue reached $45.2 billion, a 16% year-over-year increase; operating profit grew by 30%.
Paid Subscribers: Global paid subscribers surpassed 325 million.
Free Cash Flow: Q4 free cash flow was $1.9 billion.
2. 2026 Outlook and Guidance
Management's guidance for 2026 is as follows:
Q1 2026 Revenue Expectation: $12.2 billion, slightly above the analyst estimate of $12.19 billion.
Q1 2026 EPS Expectation: $0.76, below the analyst estimate of $0.81.
FY 2026 Revenue Expectation: $50.7 billion to $51.7 billion, a 12% to 14% year-over-year increase.
2026 Operating Margin: Expected to be 31.5%.
Advertising Business: Advertising revenue grew by more than 2.5 times in 2025, exceeding $1.5 billion. It is expected to double again in 2026, reaching approximately $3 billion.
Content Budget: The annual content budget of $17 billion will grow slower than revenue to maintain profit margins.
3. Market Reaction and Stock Price Decline
Stock Price Decline: Following the earnings release, Netflix's stock price fell by 4.9% in after-hours trading. As of January 9, 2026, the stock price had fallen 27.9% from its late October 2025 high.
Main Reasons:
Earnings Guidance Miss: The Q1 2026 EPS guidance was below market consensus, raising investor concerns.
WBD Acquisition Uncertainty: The proposed acquisition of Warner Bros. Discovery (WBD) by Netflix was a major "overhang" affecting the stock price. Although Netflix revised the acquisition terms to an all-cash transaction of $27.75 per WBD share to accelerate the deal and provide higher value, this move also paused the stock repurchase program to build cash reserves, which displeased investors.
Analyst Target Price Downgrades: Some analysts lowered their target prices due to the "ongoing M&A overhang".
4. Analyst Views and Market Sentiment
Analyst Ratings: Wall Street analysts generally hold a "Moderate Buy" rating for NFLX. Among 43 analysts, 25 gave a "Strong Buy," 3 a "Moderate Buy," 13 a "Hold," and 2 a "Strong Sell".
Average Target Price: The average target price for Netflix is $128.99, indicating a potential upside of 36.7% from the then-current stock price.
Advertising Business Growth: The strong growth in the advertising business is seen as a positive factor.
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