NFLX Q4 Deep Dive: Guidance for 2026 Disappoints Despite Strong Revenue Growth

Streaming video giant Netflix (NASDAQ: NFLX) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 17.6% year on year to $12.05 billion. The company expects next quarter’s revenue to be around $12.16 billion, close to analysts’ estimates. Its GAAP profit of $0.56 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Netflix’s fourth quarter was marked by robust revenue growth and operating margin expansion, but the market reacted negatively, with shares falling over 5%. Management pointed to continued subscriber momentum and a growing advertising business as key drivers of the quarter. Co-CEO Gregory Peters highlighted, “We delivered 16% revenue growth, roughly 30% operating profit growth, expanding margins, growing key free cash flow, Ad sales, two and a half times in 2025.” The company also emphasized progress in global content engagement and investment in new entertainment categories like live events and gaming.

Looking ahead, Netflix’s guidance for 2026 has raised concerns, as management is focusing on organic growth through investments in content variety, ad technology, and global expansion, while integrating new business lines like live sports, podcasts, and gaming. Co-CEO Theodore Sarandos noted, “We’re focused on improving the core business…enhancing the product experience, and growing and strengthening our ad business.” However, management acknowledged that increased content spending and integration costs from the pending Warner Bros. acquisition could pressure margins in the coming year.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to subscriber growth, advertising momentum, and expanding into new content formats, while acknowledging near-term cost headwinds from content investments and integration efforts.

• Subscriber growth accelerates: Netflix saw continued expansion in its global membership base, with strong acquisition and retention trends. The company highlighted that engagement from branded original content increased 9% year over year in the second half, supported by successful local and global programming.
• Advertising business scaling: Ad-supported revenue grew more than two-fold in 2025, and management expects advertising sales to double again in 2026. Gregory Peters explained that closing the gap between ad-supported and ad-free average revenue per membership is a multiyear opportunity, as the company improves its ad tech and sales capabilities.
• Product and content diversification: Netflix continued to invest in new content categories, including live sports events, video podcasts, and cloud-based gaming. Sarandos cited upcoming live events and international sports rights, such as the World Baseball Classic in Japan, as areas of focus for driving engagement and retention.
• Pending Warner Bros. acquisition: Management sees the planned Warner Bros. and HBO acquisition as a strategic accelerant, bringing a mature theatrical distribution business, valuable intellectual property, and complementary production capabilities. Integration costs are expected to modestly weigh on margins in the near term.
• Content investment prioritization: Content amortization is forecast to rise about 10% in 2026, with the slate balanced more evenly across the year. CFO Spencer Neumann reiterated that growth in content spend will remain disciplined and slower than revenue, supporting long-term margin expansion.

Drivers of Future Performance

Netflix’s 2026 outlook is shaped by expectations for healthy subscription growth, advertising ramp-up, and incremental spending on content and new business lines, partially offset by integration costs.

• Ad revenue as key growth lever: Management expects advertising to contribute a larger share of revenue in 2026, targeting a near doubling of ad sales to approximately $3 billion. The company is investing in ad tech, data, and global sales resources to increase fill rates and inventory monetization, but acknowledged that the gap to ad-free revenue per user remains a risk if advertiser demand lags.
• Warner Bros. acquisition impact: The anticipated integration of Warner Bros. and HBO will expand Netflix’s content library and theatrical capabilities, but management flagged that associated costs will drag on operating margins by about half a percentage point in 2026. Regulatory approval and successful cultural integration remain uncertainties.
• Content and product innovation: Netflix is prioritizing investment in new content formats, including live events, podcasts, and gaming, and plans to launch a redesigned mobile interface in late 2026. Continued global expansion and product improvements are intended to support membership growth, though increased spending could pressure profitability if engagement does not keep pace.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) progress on the Warner Bros. and HBO acquisition and its regulatory approval, (2) the scaling of ad-supported revenue and improvements in ad technology, and (3) the impact of content spending on both engagement and margins. New product rollouts, including cloud gaming and a revamped mobile interface, will also be critical signposts for Netflix’s execution in 2026.

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