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Netflix just posted numbers that should’ve had investors celebrating. Instead, the stock dropped over 6% in premarket trading. What happened?
The Good News Nobody Cares About
Netflix beat expectations across the board:
- Revenue: $12.05 billion vs $11.96 billion expected
- Earnings per share: 56 cents vs 55 cents expected
- Subscribers: 325 million (up 25 million in the quarter)
- Full year revenue: $45.2 billion, beating the $45.1 billion forecast
- Q1 guidance: Way better than expected at $12.16 billion revenue vs $10.54 billion forecast
By any normal standard, this is a solid quarter. So why did the stock fall?
Reason 1: The $72 Billion Elephant in the Room
On the same day Netflix reported earnings, it amended its deal to buy Warner Bros. Discovery. The new terms: all cash, $27.75 per share, $72 billion total.
This is massive. Netflix is pausing share buybacks to save cash. It’s secured $67.2 billion in bridge loans. It’s already spent $60 million just on financing costs.
Investors hate uncertainty, and this deal is uncertainty on steroids. Will it get regulatory approval? Will shareholders vote for it? Can Netflix actually integrate Warner Bros. without destroying value?
Reason 2: Growth is Slowing Down
Look at the numbers:
- 2025: 16% revenue growth
- 2026 forecast: 12-14% growth
That’s a deceleration. And the low end of Netflix’s 2026 forecast ($50.7 billion) actually missed analyst expectations of $50.98 billion.
Netflix is also guiding for higher content spending in the first half of 2026. CFO Spencer Neumann said explicitly: “You should see higher year-over-year content expense growth in the first half of ’26.”
Translation: Netflix needs to spend more to keep growing. The easy growth is over.
Reason 3: The Engagement Problem
Buried in Netflix’s shareholder letter was an admission: engagement in licensed content dropped in the second half of the year.
The company blamed this on “a lower volume of licensed, second-run content across most regions following an elevated period of licensing during 2023-2024 as a result of the WGA strike.”
Here’s what that means: During the writers’ strike, there was a glut of licensed content available. Netflix scooped it up, and engagement went up. Now the strike is over, production has normalized, and engagement is dropping.
Original content viewing was up 9%, but it wasn’t enough to offset the licensed content decline.
Reason 4: The Paramount Wildcard
Netflix isn’t the only bidder for Warner Bros. Paramount Skydance (backed by Larry Ellison) has offered $30 per share, $108 billion total. That’s a higher price than Netflix’s $27.75 offer.
Now, Paramount’s bid includes Warner’s cable and news assets (which Netflix doesn’t want), and Paramount would need to take on massive debt. But the fact remains: there’s a competing bid on the table, and it’s higher.
The shareholder vote is expected by April, but regulatory approval could take until next year. And President Trump, who’s close with Larry Ellison, has expressed personal interest in Warner’s fate.
Investors don’t like bidding wars. They’re expensive, distracting, and often end badly.
Reason 5: Price Increases Are Probably Coming (But Netflix Won’t Say It)
When asked if Netflix would raise prices to fund all this expansion, Co-CEO Gregory Peters gave a non-answer: “There is no impact or change to our approach and how we’re running the business in that regard.”
That’s not a denial. That’s corporate speak for “we’re thinking about it but don’t want to announce it right now.”
Investors can read between the lines. If Netflix is spending more on content, integrating a $72 billion acquisition, and facing slowing growth, price increases are likely. And price increases risk subscriber churn, especially in price-sensitive markets.
Reason 6: The Stock Was Already Down 30%
Netflix’s stock has tumbled over 30% in the past three months. That’s why the company switched from a stock-plus-cash deal to an all-cash deal for Warner Bros. The stock component was losing value too quickly.
When a stock is down that much, investors are already nervous. Add uncertainty about a massive acquisition, slowing growth, and higher content spending, and you get a sell-off even on good earnings.
The Real Problem
Here’s the fundamental issue: Netflix is making a massive, risky bet at exactly the wrong time.
The core business is solid but slowing. Growth is decelerating. Content costs are rising. And instead of focusing on fixing these issues, Netflix is diving into a $72 billion acquisition that will require years of integration work, regulatory approval, and massive financial commitments.
As KPMG’s Frank Albarella put it: “As catalogs grow, costs rise, live formats expand, and experiences and acquisitions reshape expectations. Breadth is no longer a simple advantage; it’s a more complex responsibility.”
Netflix is betting that acquiring Warner Bros.’ library (including Game of Thrones, Harry Potter, and DC Comics) will solve its growth problem. But what if it doesn’t? What if the integration is messy? What if regulators block it? What if Paramount wins the bidding war?
What Analysts Are Saying
Michael Ashley Schulman from Running Point Capital Advisors defended Netflix’s approach: “Historically, Netflix has not shied away from doing what’s right for long-term growth even at the expense of near-term negative share price reaction. That seems to be the case again.”
John Belton from Gabelli Funds saw the logic: “If this Warner Brothers deal closes, one of the benefits is going to be a much bigger content library, which could, in theory, mean slower, less need to invest so aggressively to grow that library over time.”
But the market isn’t buying it. At least not yet.
The Bottom Line
Netflix didn’t fall because the earnings were bad. The earnings were good.
Netflix fell because investors are terrified of what comes next:
- A $72 billion acquisition with uncertain regulatory approval
- Slowing growth that might require price increases
- Higher content spending eating into margins
- A bidding war with Paramount that could get expensive
- Integration challenges that could take years
Good earnings don’t matter if investors think the strategy is risky. And right now, Wall Street thinks Netflix is taking on way too much risk at exactly the wrong time.
The company is betting $72 billion that it can transform from a streaming service into an entertainment empire. Maybe it will work. But investors aren’t sticking around to find out, at least not at current prices.
That’s why Netflix can beat every estimate and still watch its stock fall. The numbers are fine. It’s the future that has everyone worried.
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