Netflix Shares Face Headwinds Despite Solid Quarterly Performance

Netflix Inc. delivered a fourth-quarter 2025 performance that edged past Wall Street's forecasts, yet its stock remains under significant pressure. Investor concerns are primarily centered on a cautiously framed outlook for 2026 and the unresolved complexities surrounding its proposed acquisition of key assets from Warner Bros. Discovery.

For the final quarter of 2025, the streaming giant reported revenue and earnings that modestly exceeded analyst consensus. Key financial figures included:

• Earnings per share (EPS): $0.56, compared to an expected $0.55.
• Revenue: $12.05 billion, surpassing estimates of $11.97 billion and marking an 18% year-over-year increase.
• Net Income: $2.42 billion, a jump of 29.4% from the prior-year period.
• Operating Margin: 24.5%, up from 22.2% in Q4 2024.

A notable development was the company's decision to once again disclose subscriber figures, a metric it had previously stopped reporting regularly. Netflix revealed it surpassed 325 million global paying subscribers during the quarter, a significant increase from 301.2 million a year earlier. This update provides a crucial benchmark for assessing the health of its core subscription business.

Advertising Revenue Emerges as Powerful Growth Engine

The advertising-supported tier is rapidly gaining importance. For the first time, Netflix provided an annual figure for its advertising revenue, stating it exceeded $1.5 billion in 2025. This represents a more than doubling of ad sales compared to 2024.

Management is targeting another substantial increase for 2026, projecting advertising revenues to reach approximately $3 billion. This underscores the ad-based model's evolving role as a major growth driver alongside the traditional subscription service.

Revised Bid for Warner Bros. Discovery Assets

Shortly before its earnings release, Netflix adjusted the terms of its planned acquisition of core Warner Bros. Discovery (WBD) assets. The deal, originally structured as a combination of cash and stock, was converted to an all-cash offer.

• Offer Price: $27.75 per WBD share.
• Total Equity Value: $72 billion.

To finance the transaction, Netflix increased its committed bridge loans by $8.2 billion to a total of $42.2 billion. The company also announced a pause in its share repurchase program to preserve liquidity.

Competing Hostile Bid Adds Complexity

The situation was complicated by a competing, hostile takeover bid from Paramount Skydance. This rival offer proposes to acquire all outstanding shares of Warner Bros. Discovery for $30 per share.

The strategic focus of the two offers differs significantly:

Should investors sell immediately? Or is it worth buying Netflix?

• Netflix is targeting WBD's film studios and the HBO Max streaming platform.
• Paramount Skydance aims to acquire the entire company, including cable and news networks.

On the earnings call, Co-CEO Ted Sarandos expressed confidence that Netflix's proposal would clear regulatory hurdles. He argued the transaction would strengthen the market, ensure competition, benefit consumers, and help preserve and create jobs.

Cautious 2026 Guidance Weighs on Sentiment

The company's outlook for the current year was received critically by the market and is considered a primary reason for the stock's negative reaction. Netflix provided the following guidance for 2026:

• Full-Year Revenue: $50.7 to $51.7 billion, implying growth of approximately 12–14%.
• Q1 2026 Revenue: $12.16 billion, a 15.3% year-over-year increase.
• Full-Year Operating Margin: 31.5%, compared to 29.5% in 2025.
• Full-Year Free Cash Flow: Approximately $11 billion.

On a currency-neutral basis, the company expects revenue growth of 11–13% in 2026. This represents a noticeable deceleration from the 17% constant-currency growth achieved in 2025. This projected slowdown, combined with the uncertainty of the WBD transaction, continues to pressure the share price despite the slight earnings beat.

Concurrent Increase in Content Spending

Alongside this guidance, Netflix plans to raise its content investment in 2026 by roughly 10% to about $20 billion. Higher content costs are expected to be concentrated in the first half of the year. Consequently, management anticipates that operating income growth will be more pronounced in the second half of 2026.

Stock Performance and Market Reaction

The day after the earnings report, Netflix shares declined by 2.2% to close at $85.36. Trading volume was notably high at 124.8 million shares, more than double the three-month average. Since October 2025, when initial speculation about a potential WBD transaction emerged, the stock has lost approximately 30% of its value.

The current share price sits about 37% below its 52-week high of $133.91, reached in June 2025. Netflix executed a 10-for-1 stock split in November 2025.

Upcoming Catalysts and Strategic View

The next quarterly report is anticipated in April 2026. Also expected by April is a shareholder vote at Warner Bros. Discovery on the proposed transaction. Should it receive approval, management estimates a regulatory review period of 12 to 18 months.

During the conference call, company executives described the WBD acquisition as a "strategic accelerator" for its content library and pricing model flexibility. However, it remains clear that until the fate, final terms, and integration costs of the deal are determined, this uncertainty will likely remain a key overhang on Netflix's valuation.