Netflix Shares Under Pressure as Growth Forecasts Dim

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Netflix Inc. delivered fourth-quarter 2025 results that edged past Wall Street's estimates, yet investor sentiment turned sharply negative as the company's outlook for 2026 and the evolving structure of its planned Warner Bros. Discovery acquisition raised significant concerns. The subsequent after-hours sell-off pushed the stock to a fresh 52-week low, extending a substantial decline from its peak. The central question for shareholders now revolves around the streaming giant's remaining growth potential.

The equity's value has fallen approximately 40% from its all-time high of $133.91, reached on June 30, 2025. In yesterday's session, the stock established a new annual low at $81.93 before closing at $85.36. Since initial rumors of the Warner Bros. deal surfaced in October 2025, the share price has shed nearly 30% of its value. Based on management's implied 2026 earnings per share of around $3, Netflix currently trades at a multiple of 28 times forward earnings.

Several research firms promptly adjusted their price targets downward while maintaining their investment ratings:

• Guggenheim (Buy): Lowered its target to $130 from $145, citing moderating user engagement trends and more conservative profit forecasts.
• KeyBanc (Overweight): Trimmed its target to $108 from $110, pointing to specific risks in usage metrics, additional investments, and uncertainties surrounding the Warner transaction.
• Pivotal Research (Hold): Slashed its target to $95 from $105, noting that the global subscriber count came in roughly 10 million below its own projections.

Morningstar analysts interpreted the guidance as confirmation of a decelerating growth pace in the mature U.S. market.

Q4 2025 Performance: Solid Results, Muted Enthusiasm

For the final quarter of 2025, Netflix reported revenue of $12.05 billion, a 17.6% year-over-year increase that slightly exceeded consensus estimates. Net profit jumped 29.4% to $2.42 billion. Diluted earnings per share came in at $0.56, also beating the anticipated $0.55 and up from $0.43 in the prior-year period.

The company's global paid subscriber base surpassed 325 million, compared to 301.2 million a year earlier. Netflix, which had previously ceased regular quarterly reporting of this metric, now discloses it only at selected intervals.

Advertising Emerges as a Core Segment

In a significant development, Netflix provided detailed figures for its advertising tier for the first time. The segment generated over $1.5 billion in revenue for the full year 2025, more than 2.5 times the previous year's total. Management projects another doubling in 2026, targeting approximately $3 billion in ad revenue.

Usage Growth Shows Signs of Slowing

Total viewing hours on the platform during the second half of 2025 reached 96 billion, representing a modest 2% increase from the same period in 2024. This marks a notable slowdown from the 9% growth rate recorded for the full year.

However, viewership of Netflix's original content grew by 9% in that same half-year period. Key drivers included the final season of Stranger Things, amassing 120 million views, and the NFL games streamed on Christmas Day, which contributed to the platform's strongest single-day and monthly streaming records in the United States.

Disappointing 2026 Guidance

The financial outlook for the coming year fell short of elevated market expectations. Netflix forecasts 2026 revenue in the range of $50.7 billion to $51.7 billion, implying growth of 12% to 14%. This trails behind unofficial market "whisper numbers" that had hovered around 16%. The company also guided for an operating margin of 31.5%, below the 32.6% some analysts had anticipated.

Content amortization expense is projected to rise by about 10% in 2026, suggesting a content budget near $20 billion, up from roughly $18 billion in 2025.

For the first quarter of 2026, management expects revenue of $12.16 billion and EPS of $0.76. The profit guidance is approximately 6.2% below current analyst consensus.

Warner Bros. Discovery Deal: Shift to All-Cash Transaction

Concurrent with its earnings release, Netflix announced a revised structure for its proposed acquisition of Warner Bros. Discovery's studios and HBO Max. The deal will now be an entirely cash-based transaction. The amended purchase price is set at $27.75 per WBD share, equating to an equity value of approximately $72 billion and an enterprise value of $82.7 billion when including debt.

To finance the purchase, Netflix increased its committed bridge loan facility by $8.2 billion to a total of $67.2 billion. The company has also suspended its share repurchase program to preserve capital for the transaction. To date, $60 million in deal-related costs have been incurred, with an additional $275 million budgeted for 2026.

Regulatory Hurdles and Competing Bid

Co-CEO Ted Sarandos expressed confidence that regulators would approve the merger, describing it as "consumer-friendly" and beneficial for industry growth.

Netflix faces competition from a hostile counter-bid by Paramount Skydance, which continues to lobby for approval from WBD shareholders. Guggenheim analyst Jeff Wlodarczak warned the bidding contest may not be over, labeling the transaction as "expensive." He also highlighted the risk that integrating a large acquisition could consume management focus just as competition for content intensifies.

According to a recent Warner Bros. Discovery communication, over 93% of its shareholders have voted against the Paramount offer and in favor of the Netflix agreement. However, Paramount Skydance has extended its counter-offer deadline to February 20, 2026, meaning the formal contest for Warner Bros. Discovery remains ongoing.

Forward-Looking Commentary and Key Dates

Netflix anticipates improved financial performance as 2026 progresses, particularly in the second half of the year. Management expects operating income growth to accelerate during this period, as increased advertising revenue and price hikes are projected to outweigh the continued rise in content spending.

Important upcoming milestones include:

• April 2026: Expected shareholder vote by Warner Bros. Discovery on the acquisition by Netflix.
• Q1 2026 Earnings: Netflix's next scheduled quarterly results announcement.