Netflix’s excellent Q4 results but weak Q1 guidance; suspends buybacks for Warner acquisition; shares fell over 5% after hours | Earnings Report News

```

American streaming giant Netflix beat Wall Street expectations in the fourth quarter of last year, with global subscription users surpassing 325 million by year-end. However, the company gave cautious guidance for this quarter and the full year, with profits affected by the acquisition of Warner Bros., and it paused stock repurchases due to the acquisition decision, disappointing investors.

Last year, Netflix invested about $18 billion in content production, with user numbers growing nearly 8%, yet both subscription growth and viewing hours slowed. Netflix also plans to increase content-related spending by 10% in 2026, while advancing the acquisition deal for Warner Bros. studios and streaming business. Netflix stated that the Warner Bros. acquisition will add $275 million in related costs, on top of the $60 million already spent last year—this series of news became a major drag on stock prices.

After the earnings release, Netflix shares plunged after hours, dropping more than 5% at one point to below $83, then narrowing the decline to under 5%. If this trend continues after the Wednesday opening, it could set a new low since the April sell-off panic caused by the Trump administration's tariff announcement last year.

On Tuesday, January 20, US Eastern Time, after the US stock market closed, Netflix announced its financial results for the fourth quarter of 2025 (ending December) and provided guidance for Q1 and the full year of 2026.

1) Key Financial Data:

Revenue: Q4 revenue was $12.05 billion, up 17.6% year-on-year, analyst expectation was $11.97 billion; Q3 year-on-year growth was 17.2%.

Operating profit margin: Q4 was 24.5%, analyst expectation 24.2%, Netflix's own guidance 23.9%; Q3 was 28.2%, a year ago 22.2%.

Net profit: Q4 net profit was $2.419 billion, up 29.4% year-on-year, Netflix’s guidance was $2.355 billion, Q3 year-on-year increase of 7.7%.

EPS: Q4 diluted EPS was $0.56, up 30.2% year-on-year, analyst expectation $0.55, guidance $0.545; Q3 EPS up 8.7% year-on-year.

Free cash flow: Q4 free cash flow was $1.872 billion, up 35.8% year-on-year, analyst expectation $1.46 billion, Q3 year-on-year growth 21.2%.

2) Earnings Guidance:

Revenue: Q1 revenue forecast at $12.16 billion, analyst expectation $12.17 billion; full-year revenue estimated at $50.7 to $51.7 billion, up 12-14% y/y, analyst expectation $50.96 billion.

EPS: Q1 forecast EPS $0.76, analyst expectation $0.82.

Operating profit: Q1 operating profit forecast at $3.906 billion, Q1 margin 32.1%; analyst forecast $4.18 billion, margin 34.4%. Netflix estimates full-year operating margin at 31.5%, analyst expectation 32.4%.

Free cash flow: Full-year guidance about $11 billion, analyst forecast $11.93 billion.

Q4 Results Steady, Subscribers Surpass 325 Million, Up Nearly 8% YoY

Earnings show Q4 revenue of $12.05 billion, beating analyst expectations by nearly $120 million, up almost 18% year-on-year. The growth accelerated slightly from the just-over-17% of Q3; EPS slightly exceeded expectations. Operating profit grew 30% year-on-year, and operating margin rose 2.3 percentage points to24.5%, both higher than market expectations.

Q4 operating cash flow rose 37% y/y to $2.11 billion; free cash flow of $1.87 billion up over 30%, both significantly above expectations.

By region, Netflix saw double-digit strong growth in all major markets in Q4, except for slightly weaker growth in Asia-Pacific:

• U.S. and Canada revenue $5.34 billion, up 18% y/y, analyst expectation $5.26 billion;
• Europe, Middle East & Africa (EMEA) revenue $3.87 billion, up 18% y/y, analyst expectation $3.84 billion;
• Latin America revenue $1.42 billion, up 15% y/y, matching analyst expectations;
• Asia-Pacific revenue $1.42 billion, up 17% y/y, analyst expectation $1.44 billion.

In its shareholder letter, Netflix stated that revenue growth was primarily driven by member increases, price hikes, and higher ad income. Despite adverse forex fluctuations in Q4, stronger-than-expected member growth and ad sales brought actual revenue 1% above guidance. Global paying members now exceed 325 million, up nearly 8% from a year earlier.

Netflix's 2025 full-year revenue reached $45 billion, up 16% y/y. Operating margin climbed from 26.7% in 2024 to 29.5%, meeting or exceeding all annual financial targets. Ad revenue was particularly strong, rising over 2.5x from 2024 to more than $1.5 billion in 2025.

Q1 EPS Guidance Far Below Expectations, Full-Year Includes $255 Million Acquisition-Related Costs

Netflix's Q1 2026 guidance fell short across the board versus Wall Street expectations. The company forecasts Q1 revenue of $12.16 billion, slightly below analysts’ $12.17 billion.

Netflix expects Q1 EPS growth to slow, from over 17% year-on-year in Q4 to nearly 15.2%, while Wall Street expected an acceleration to 24.2%; its guidance for EPS is $0.76, 7.3% below analyst forecasts. Q1 operating profit guidance was also nearly 6.5% below analyst estimates.

For full-year 2026, Netflix expects revenue of $50.7–$51.7 billion, up 12–14% y/y, slightly above market expectation of $50.96 billion. But operating margin is forecast at 31.5%, below expectations of 32.4%; free cash flow guidance is about $11 billion, below the expected $11.93 billion.

Netflix explained in its shareholder letter that the full-year operating margin outlook already includes about $275 million in acquisition expenses. The company also expects amortization of content to rise about 10% in 2026, faster in the first half than the second, so second-half operating profit growth is expected to outpace the first half. Netflix expects 2026 ad revenue to double that of 2025.

According to Nielsen, thanks to the final season of hit sci-fi "Stranger Things," Netflix's December viewing soared 10% month-on-month, with the show racking up 15 billion viewing minutes. However, last year’s increased content spend yielded only marginal gains in watch time, with overall engagement rising just about 2% in H2.

Warner Bros. Acquisition Dents Profits, Pauses Stock Buybacks

On Tuesday, Netflix announced that it had amended the Warner Bros. acquisition deal, changing from a cash-plus-stock deal to an all-cash acquisition at $27.75 per share, with the total transaction value remaining at $72 billion. Warner plans to spin off its cable TV network business in a separate deal.

This acquisition faces competition from Paramount (Paramount Skydance). Led by David Ellison, son of Oracle founder Ellison, Paramount had previously bid $30 per share in cash for all Warner Bros. shares, for a total deal value of $77.9 billion. Netflix co-CEO Ted Sarandos stated that the revised all-cash offer would speed up the shareholder voting process and offer greater financial certainty.

Netflix said in its shareholder letter that Warner Bros. is highly complementary to Netflix, and that after the merger, it will be able to offer creators more opportunities and strengthen the entire entertainment industry. The acquisition will provide Netflix with one of the world's strongest content libraries, which can be used to develop new content and help expand into new businesses such as consumer products, experiences, and video games.

The company secured a $59 billion bridge loan commitment for the Warner acquisition as of December 4 last year, and on Monday increased the commitment by another $8.2 billion to support the all-cash bid. By year-end, about $60 million in loan-related costs had been incurred and booked as interest expense.

To accumulate cash for the deal, Netflix announced a pause in its stock buyback plan. This decision, alongside lower-than-expected guidance, became the main cause for the sharp after-hours stock decline, reversing the shares back to their lowest level since April's panic sell-off.

Price Increases and Ad Business Sustain Growth

Despite slowing new user and viewing hour growth, Netflix maintained double-digit revenue growth via price hikes and ad business. The company projects further price increases in 2026, with ad revenue expected to double from $1.5 billion in 2025 to about $3 billion in 2026.

Strong Q4 content line-up boosted results, including the final season of "Stranger Things," a documentary series on hip-hop mogul Sean Combs, and Guillermo del Toro’s new "Frankenstein" film adaptation. The company also streamed two NFL games live on Christmas and released the third film in the "Knives Out" mystery series.

Co-CEO Greg Peters said the revised deal "demonstrates our commitment to the transaction" and accelerates Warner shareholders’ decision-making. Netflix said its 2026 goals include completing the Warner Bros. acquisition and expanding content categories such as video podcasts.

Netflix has stopped regularly providing subscriber growth updates, guiding investors to focus instead on more traditional financial metrics. In its shareholder letter, the company emphasized that there is still ample room to improve margins, and plans to increase operating margin each year, though the rate of expansion will fluctuate annually due to the balance of investment and profitability.

Risk Warning and DisclaimerThe market involves risk; investment requires caution. This article does not constitute personal investment advice, nor does it consider individual user’s investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their circumstances. Investment based on this is at your own risk.

```