Netflix gets bigger. Wall Street wants more

Netflix $NFLX added more money, more members, and more ambition last quarter. It showed off its scale and asked for patience. But investors aren’t buying it.

Tuesday after the bell, the company mostly (and modestly) beat fourth-quarter 2025 expectations, hit 325 million paid memberships, and laid out an aggressive 2026 plan — including sharply higher margins — but the stock fell close to 5% after hours, underscoring how tightly the company’s future is tied to ad growth and a looming Warner Bros. Discovery deal. The numbers are clean. The narrative isn’t.

Because while Netflix’s latest earnings report delivered the usual markers of success — growth, profit, scale — the subtext was about what happens when a streaming giant starts behaving less like a disruptor and more like a consolidator with a side business to build. While Netflix’s long-term margin story strengthened, near-term costs get heavier first — including higher content amortization and deal-related expenses that are front-loaded into early 2026. So the destination may be attractive, but the path to get there looks bumpy.

Revenue came in at $12.1 billion, up 17.6% year over year, and a one-cent beat of $0.56 per share; net income came in at $2.42 billion, and operating margin was 24.5% for the quarter. Netflix also reaffirmed its longer-range posture, guiding to $50.7 billion–$51.7 billion in 2026 revenue and a 31.5% operating margin, even after acquisition-related costs. On paper, that’s the profile of a company that believes it has matured into a durable cash machine.

So why the selloff?

Netflix’s near-term outlook landed softer than the market wanted. The company’s Q1 2026 guidance for both revenue and EPS came in below the Street’s expectations — a small miss, but a meaningful one in a stock that’s priced for confidence. Even the long-range guidance carried a bit of a buzzkill: The low end of Netflix’s 2026 revenue range sits below the consensus estimate some analysts were using as their baseline. That turns “ambitious” into “fine” and “fine” into a stock that gets treated like it has to prove itself again.

But markets aren’t just grading this quarter in isolation. Investors are weighing whether Netflix’s next chapter — ads, scale, and a potentially balance-sheet-stretching acquisition — adds up to a story that deserves fresh multiple expansion right now. Investors' response, at least in the first 20 minutes of after-hours trading, was a polite but unmistakable “not yet.”

“Looking ahead to 2026, we’re focused on improving the core business,” said co-CEO Ted Sarandos, “and we do that by increasing the variety and quality of our series and films. We do that by enhancing the product experience and by growing and strengthening our ad business.”

Netflix is no longer selling one clean narrative. It’s selling three: that of a subscription giant trying to keep growing, that of an advertising business trying to scale, and that of a consolidator trying to do a very large deal without breaking the very profitable thing it already built.

Subscriber momentum still matters

Netflix crossed 325 million paid memberships this quarter, another reminder that it remains the largest paid streaming platform on the planet by a wide margin. Growth was broad-based, with double-digit revenue increases across regions, and engagement held steady even as the company cycled past the sugar high of its password-sharing crackdown.

But Netflix added about 23 million subscribers in 2025 versus 41 million in 2024, when the lower-price, ad-supported tier was introduced — a slowdown that might change how every growth story gets read and will raise questions about Netflix’s subscriber growth potential. When the numbers get this big, deceleration becomes the background music whether you want it or not. And at 325 million subscribers, the company can’t just rely on adding users. Netflix will need to extract more value per household — and do so visibly.

The company reported 96 billion hours watched in the second half of 2025, up modestly year over year, driven by stronger viewing of Netflix-branded originals. December was especially strong, with viewing boosted by Netflix’s NFL Christmas games and the final season of “Stranger Things,” and Netflix says its share of U.S. TV time hit a record 9% that month. All of that signals that Netflix’s content machine is still pulling its weight — and that the service isn’t quietly hollowing out as licensed titles rotate off. But at this scale, “solid” subscriber growth doesn’t move the stock the way it used to.

And at the same time, the earnings were candid about the trade-offs. Viewing of non-branded, licensed content declined as Netflix stepped back from strike-era licensing deals. That makes sense rationally — that saves money, that sharpens the brand — but it also reinforces the reality that engagement isn’t automatic. At this scale, Netflix doesn’t get to coast. Engagement doesn’t grow automatically; it has to be earned, paid for, and refreshed. Netflix has to keep paying for relevance, and it has to keep doing so in a way that supports margin targets Wall Street is now treating like an obligation.

Netflix would prefer that investors talk about monetization per member instead of raw net adds. But Wall Street still wants to talk about both. This quarter showed the engine is intact — but it isn’t accelerating in a way that overwhelms other concerns.

Ads are no longer the footnote

Netflix disclosed that 2025 ad revenue topped $1.5 billion, more than 2.5 times higher than the prior year, and the company said it expects ad revenue to roughly double again in 2026. So the ad business has become a second engine the company is comfortable modeling in public.

What Netflix is really selling here isn’t just ad dollars, but optionality. Ads give the company more room to push pricing without triggering churn, more leverage in content negotiations, and a way to monetize engagement that doesn’t depend on adding tens of millions of new subscribers every year. Pure subscription growth inevitably slows, and advertising is how Netflix keeps the growth math feeling elastic.

Investors, though, are still deciding how much credit to give that story today. The company didn’t break out margins for the ad tier, and scaling ads at Netflix’s level means real spending — sales teams, technology, measurement, and increasingly, live inventory that advertisers actually want. The long-term upside is obvious. The near-term cost curve is still fuzzy. That tension is showing up in the stock price.

The Warner deal is the shadow over everything

Today’s Netflix earnings call will double as a referendum on the proposed Warner Bros. Discovery transaction. The offer is now all cash (at $27.75 per share), financing is being lined up, and Netflix is already behaving like a company preparing for a balance-sheet-shaping transaction. “We’re no strangers to competition, and we’re no strangers to change,” Sarandos said on the earnings call, recalling how, early on, Netflix fought off both Blockbuster and Walmart $WMT. He said he was confident the deal would be approved by regulators because “this deal is pro-consumer. It is pro-innovation. It’s pro-worker. It is pro-creator, and it is pro-growth.”

Sarandos also claimed that the company’s default position going into negotiations was that they “were not buyers.” He added, “We went into this with our eyes open and our minds open, and when we got into it, we both got very excited about this amazing opportunity.”

The company used the shareholder letter to emphasize cash generation — $9.5 billion in free cash flow in 2025, with guidance for about $11 billion in 2026 — and to explain why capital returns are taking a back seat to balance-sheet flexibility. Buybacks are paused. Cash accumulation is the priority. The message is clear: Netflix believes it can afford this behemoth purchase.

What investors are still wrestling with is whether they want it to.

Co-CEO Greg Peters said Warner Bros. is “an accelerant to our strategy, and it’s another mechanism to improve our offering for our members. The strategic logic is clear: a deeper library, more IP, more live and unscripted inventory, and a content engine that feeds both subscriptions and ads. The risks are just as obvious: integration complexity, regulatory scrutiny, and the possibility that Netflix is voluntarily stepping into the same corporate sprawl it once used as a cautionary tale. ”

And that uncertainty is part of why a mostly clean beat didn’t translate into a clean rally. The quarter worked. The future is louder.

Netflix is asking the market to believe it can be a high-growth streamer, a scaled advertising platform, and a disciplined consolidator — all at once. Tuesday’s numbers make that look financially plausible. The after-hours reaction suggests investors want fewer leaps of faith, more proof of timing, and a clearer sense of how much complexity they’re being asked to underwrite.