The Good, The Bad, and the Unknown at Netflix
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What were Netflix's earnings results and market response?
Netflix reported earnings last night and the stock is down today. What's going on? Motley Fool Money starts now.
Welcome to Motley Fool Money. I'm Travis Hoey. I'm joined by Rachel Warren and Lou Whiteman. Big news over the last 24 hours has been Netflix. They reported earnings yesterday. The numbers looked pretty good, but the stock's down about 3% as we're recording. It was down about 5% to the open. But Rachel, what did you see from the results from Netflix?
Despite the market's response, I would say it was a pretty good report for the company. I want to talk about a few of these numbers and metrics. Netflix, their Q4 revenue was just a little over $12 billion. That was actually up about 18% from one year ago. Earnings per share of $0.56. Both were slightly above what Wall Street had been projecting. The main driver of the stock drop that we saw post-earnings had to do with management's forecast for slower revenue growth in 2026. They're looking for anywhere between 12% to 14% growth compared to 16% in 2025. They also guided for lower-than-expected Q1 profit expectations. Now, I think it's important to remember, Netflix is performing pretty strongly as a mature business.
This is a much more mature company than even five, six years ago. They are really navigating a period of significant transition, and I think that's feeding a lot into investor uncertainty. They reached a massive milestone of about 325 million global paid memberships last year. They added about 23 million subscribers over the course of 2025. The ad business is growing significantly. They're aggressively moving into live sports and events. And of course, there's that high-stakes all-cash bidding war to acquire Warner Brothers. So, I think, again, this is the undisputed leader in streaming.
Why did Netflix decide to make an all-cash bid for Warner Bros Discovery?
They've got that humming core engine. They're trading some short-term profit comfort for a bet on long-term dominance. And that's something investors need to watch.
That's the thing. Like Rachel said, it is a maturing business. We're just going to have to get used to that. This whole last six months or year of Netflix hasn't been about Netflix falling apart or the sky is falling. It's about management recognizing that they are at a new stage in their existence and reacting. Look, they're going to spend more on content this year. 10% content increase over $18 billion this year. Content is not cheap. That's partially why they are looking to acquire more of it. They are doing a big deal. There's going to be costs with that. They need to raise cash. They're pausing buybacks. Everything they're doing is rational. If you are a long-term Netflix holder, you should be relatively okay, at least, with their guidance being conservative in what they're doing.
But again, when someone tells you who they are, believe them. And what Netflix is doing is telling you that the hyper-growth, rah-rah days are over, and we need to navigate the world as a mature company.
How do you think about that transition, Lou? Because I think that is probably the right way to think about Netflix. We've been talking on some of these shows about YouTube is actually taking share in view time on TVs. So Netflix, not necessarily in the... super, super strong position that they were in a decade ago when they were a very, very clear leader in streaming. But it's still a pretty expensive stock. I'll just go through some of the numbers here. The five-year compound annual growth rate is 12.6%.
What challenges is Netflix facing as a mature business?
That's a solid growth rate, but it's not something that you would typically see trading for a really high multiple. But yet, the enterprise value to sales is 9%. The price to earnings multiple is 35%. Lou, are we in a period here where you're transitioning from being this hot upstart, this high-growth company, the world is your oyster, to you kind of conquered the world, and now you're in extraction mode? Maybe the shareholder base even shifts over that period of time to people who are looking at, what's the return on investment? What's the capital spend? All the boring stuff that we talked about with older companies.
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Chapters
8 chapters
1
What were Netflix's earnings results and market response?
0:05–2:00
2
Why did Netflix decide to make an all-cash bid for Warner Bros Discovery?
2:00–3:40
3
What challenges is Netflix facing as a mature business?
3:40–5:45
4
How is Netflix navigating its transition from growth to maturity?
5:45–7:54
5
What impact does Netflix's acquisition of Warner Bros Discovery have on its content strategy?
7:54–10:10
6
How are current bond market conditions affecting Netflix and investors?
10:10–11:54
7
What are the implications of rising interest rates for the market?
11:54–14:08
8
What should investors keep in mind regarding Netflix's future growth potential?
14:08–20:03