Netflix Shares Plunge 5% on Weaker Q1 Forecast, Erase $19 Billion Market Value
Netflix shares fell over 5% in after-hours trading, wiping $19 billion off its market value after issuing weaker-than-expected first-quarter revenue guidance. In Q4 2025, Netflix posted 17.6% year-over-year revenue growth, expanded operating margin to 24.5% and surpassed 325 million paid memberships.
1. Strong Q4 Performance with Accelerating Top-Line Growth
In Q4 2025 Netflix reported revenue growth of 17.6% year-over-year, up from 17.2% in Q3 2025, driven by an expanding subscriber base that crossed 325 million paid memberships. Operating margin widened to 24.5%, compared with 22.2% in Q4 2024, contributing to a 30% increase in EPS to $0.56. Free cash flow rose to $1.9 billion, up from $1.4 billion in the year-ago quarter, while advertising revenues more than doubled to $1.5 billion in 2025, representing over 3% of total revenue.
2. Disappointing First-Quarter Outlook Triggers Market Sell-Off
Netflix shares declined more than 5% in after-hours trading when the company issued guidance for Q1 2026 revenue growth of approximately 15.3% year-over-year, below analyst consensus. The forecast wiped roughly $19 billion off market value and suggests continued deceleration compared to the 17% constant-currency growth achieved in full-year 2025. Management also cautioned that full-year constant-currency revenue growth is expected to fall in a range of 11% to 13%, signaling a meaningful slowdown from the prior year’s 17% pace.
3. Defense of Warner Bros Acquisition Faces Investor Skepticism
CEO Ted Sarandos defended the $72 billion all-cash bid for Warner Bros Discovery, emphasizing long-term content ownership and synergy potential. He highlighted expectations for cost savings through in-house production and projected leverage to peak around 5x EBITDA before deleveraging. However, the acquisition has not convinced the market, with Netflix stock down 20% since the deal announcement. Regulatory approval remains uncertain and engagement metrics showed only 2% growth in hours watched following the deal news.
4. Valuation Reassessment and Rating Upgrade
Following a near 30% decline from its mid-2025 peak, several analysts have upgraded Netflix to a Buy, citing an attractive entry point and secured bridge financing for the Warner transaction. Despite modest Q1 guidance shortfalls, forecasts for full-year 2026 operating margin expansion to approximately 31.5% and projected operating income of $16.1 billion underpin a forward P/E in the high-20s. Upgrades reflect belief that the stock’s pullback has more than priced in near-term growth deceleration and deal-related risks.