Netflix Declines 8% Post Q4 Earnings: Buy, Sell or Hold the Stock?

Netflix NFLX shares have lost 8.1% since the release of its fourth-quarter 2025 results in January 2026, leaving investors weighing whether the post-earnings sell-off represents a buying opportunity or a signal to wait for a more favorable entry point. While the streaming giant broadly beat estimates on the top and bottom lines, the market reacted to underwhelming guidance and mounting concerns tied to its landmark acquisition of Warner Bros. Discovery's WBD streaming and studio assets.

A Quarter of Solid Numbers

Netflix reported fourth-quarter 2025 revenues of $12.05 billion, up 17.6% year over year, surpassing the consensus estimate by 0.67%. Quarterly earnings came in at 56 cents per share, topping the Zacks Consensus Estimate by 1.82%. During the quarter, the company crossed the 325 million paid memberships milestone, with its global audience now approaching one billion people. Members watched 96 billion hours of content in the second half of 2025, up 2% year over year. Netflix's advertising business also showed meaningful progress, with ad revenues growing more than 2.5 times versus 2024 to surpass $1.5 billion for full-year 2025. Operating income rose 30% year over year to $2.96 billion in the fourth quarter, and the full-year 2025 operating margin expanded to 29.5% from 26.7% in 2024.

Guidance Builds Concern

Despite the solid top-line performance, Netflix's 2026 guidance introduced a layer of caution. The company projected full-year 2026 revenues of $50.7 billion to $51.7 billion, representing 12% to 14% year-over-year growth. However, the 2026 operating margin target of 31.5% — which includes approximately $275 million in acquisition-related expenses — signals higher near-term costs. Netflix also announced a pause in share buybacks to preserve cash for the pending Warner Bros. acquisition, removing a meaningful catalyst.

For the first quarter of 2026, Netflix expects revenues of $12.16 billion with an operating margin of 32.1%. The consensus mark for 2026 earnings is pegged at $3.12 per share, moving south by 0.3% over the past 30 days, reinforcing investor concerns over near-term profitability.

Netflix, Inc. Price and Consensus

Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote

Recent Developments and Content Expansion

On the content and business front, Netflix entered February 2026 with considerable momentum. As reflected on the company's website, Netflix secured a new U.S. licensing partnership with Universal Studios and expanded its Pay-1 global film deal with Sony Pictures Entertainment. It also licensed approximately 20 shows from Paramount Skydance for select U.S. and international territories. Netflix launched video podcasts through partnerships with Spotify, iHeartMedia and Barstool Sports, and has hosted more than 200 live events to date. In 2026, the company will broadcast all 47 games of the World Baseball Classic live for viewers in Japan.

Netflix is also deploying AI tools to enhance subtitle localization, streamline advertising workflows, and assist content production teams — moves intended to improve operational efficiency and broaden global reach.

Valuation and Competitive Landscape

Shares of Netflix have plunged 22.2% over the past six months, underperforming the Zacks Consumer Discretionary sector’s decline of 7.5%. The competitive landscape adds complexity. Netflix contends with formidable rivals, including Amazon AMZN Prime Video, Disney DIS-owned Disney+ and Paramount Skydance. Amazon has deepened its content investments and continues expanding its live sports offerings, steadily chipping away at Netflix's engagement edge. Disney boasts a massive content library across its streaming platforms, making it a resilient challenger. Paramount Skydance, following its merger, is reasserting itself in the streaming space. With Amazon, Disney and Paramount Skydance all vying for subscriber wallets, Netflix's ability to sustain its premium pricing power and market share will be tested through 2026.

NFLX’s 6-Month Performance

From a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-sales ratio of 6.16X compared with the Zacks Broadcast Radio and Television industry average of 4.04 times. NFLX carries a Value Score of C.

NFLX’s P/S F12M Ratio Depicts Stretched Valuation

Investment Verdict

Netflix remains a fundamentally resilient business with a dominant global position, a growing advertising revenue stream, and significant long-term optionality through the Warner Bros. deal. The near-term risk-reward balance appears unfavorable, weighed down by margin pressure, paused buybacks and integration risk. A broadly neutral stance appears most prudent. Investors already holding NFLX shares may consider staying the course, while those looking to initiate a position would be better served waiting for a more compelling entry point before committing any fresh capital. NFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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