Netflix Q4 Earnings: Will It Win the Battle but Lose the War?

Netflix (NASDAQ:NFLX | NFLX Price Prediction) reported strong fourth quarter results that beat Wall Street estimates on revenue and earnings per share. As it gears up for the acquisition of Warner Bros Discovery (NASDAQ:WBD) studio and streaming assets, Netflix also attempted to convince investors that its all-cash bid that values the company at $83 billion was good for the company. 

However, because many of the costs associated with the deal will be front-loaded in Q1 2026, the company’s guidance for the quarter fell short of analyst expectations with earnings projected at $0.76 per share versus consensus estimates around $0.85. As a result, Netflix stock is falling over 7% in premarket trading this morning, indicating serious investor concerns over the near-term pressures Netflix faces and the merger’s execution. 

Momentum is Running Into Headwinds

Netflix closed out 2025 with a solid fourth quarter, posting revenue of $12.1 billion, which rose 18% year-over-year on a reported basis and 17% excluding foreign exchange impacts. This topped analyst expectations of $11.97 billion. Adjusted earnings per share came in at $0.56, edging out the consensus estimate of $0.55. The streamer added enough net paid subscribers to surpass 325 million globally, serving an audience nearing one billion people when accounting for multiple viewers per account. The performance was bolstered by growth in ad revenue, which more than doubled to over $1.5 billion for the full year.

Looking ahead, Netflix is forecasting 2026 revenue between $50.7 billion and $51.7 billion, representing 12% to 14% year-over-year growth, or 11% to 13% on a currency-adjusted basis. The company expects operating margins to expand to 31.5%, driven by membership increases, pricing adjustments, and ad revenue roughly doubling to about $3 billion. Free cash flow is also projected to be robust, around $11 billion, or 16% higher from 2025, assuming a cash content spend to amortization ratio of about 1.1x.

However, some expenses will weigh on the first half, including about $275 million in acquisition-related costs and higher content amortization growth due to major title launches. For Q1 specifically, revenue is guided at $12.2 billion, up 15.3%, but the EPS forecast of $0.76 disappointed investors, falling below expectations.

Will Merger Mania Sink Netflix?

The spotlight now turns to Netflix’s pending acquisition of Warner Bros studios, HBO Max, and HBO. The deal — amended to an all-cash structure at $27.75 per share for an enterprise value of $82.7 billion — aims to enhance Netflix’s content library with franchises like Harry Potter, DC Comics, and Game of Thrones. To fund it, Netflix secured a $42.2 billion senior unsecured bridge facility, including a $5 billion revolving credit and $20 billion delayed draw term loan. Q4 results already included $60 million in related financing costs.

Execution risks are potentially large, including integration challenges, regulatory approvals, and cultural clashes between the two organizations. The process is further complicated by a rival bid from Paramount Skydance (NASDAQ:PSKY), which has tendered a $30 per share all-cash offer for the full company, though Warner Bros Discovery’s board has unanimously rejected it in favor of Netflix’s proposal.

Netflix, though, may see the Warner Bros deal as essential, given the modest engagement gains it’s seen despite investing heavily in content. In the third and fourth quarters, total view hours rose just 2% year-over-year to 96 billion, up from 1% growth the prior year, but offset by declines in non-original content viewing.

On a positive note, Netflix expanded its global exclusive partnership with Sony Pictures, securing first-window streaming rights for major releases like The Legend of Zelda and Spider-Man: Beyond the Spider-Verse through 2029. This builds on existing deals and will phase in fully by early 2029. Still, the acquisition will balloon Netflix’s debt, raising investor worries about long-term financial health.

Key Takeaway

Netflix appears positioned to prevail in its pursuit of Warner Bros, though victory is not assured as Paramount Skydance is determined. Significant concerns around the frontloaded costs, debt surge, and integration of two distinct corporate cultures also weigh on investor sentiment. 

While Warner Bros brings valuable intellectual property to bolster Netflix’s library, the streamer must demonstrate that securing this win justifies the broader financial and operational costs. So far, there is ample reason to be skeptical that the outcome of the battle will prove worth the price of the war.