Netflix surpasses earnings expectations, yet concerns about subscriber growth remain

Netflix Reports Strong Year-End Results Amid Uncertainty

Netflix concluded the previous year with robust financial outcomes, but the company cautioned about possible difficulties ahead, particularly in relation to its proposed acquisition of Warner Bros Discovery.

Announced on Tuesday, Netflix’s fourth-quarter earnings surpassed Wall Street expectations. The streaming giant revealed it finished the year with over 325 million global subscribers, having gained approximately 23 million new users since the start of 2024.

However, this growth represents a significant slowdown compared to the 41 million subscribers added in 2024. This deceleration has heightened concerns among investors that Netflix’s rapid expansion—fueled by the 2022 launch of its lower-cost, ad-supported tier—may have reached its peak.

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Looking ahead, Netflix’s management predicted first-quarter profits that fell short of analyst forecasts and announced a pause on share buybacks while the Warner Bros deal is in progress.

Despite anticipating a doubling of advertising revenue, Netflix expects its overall revenue growth to slow from 16% in 2025 to between 12% and 14% this year.

“All signs point to a tough start for the year,” commented Thomas Monteiro, an analyst at Investing.com.

Following the report, Netflix’s stock dropped over 5% in after-hours trading, even though both profit and revenue exceeded expectations. The company posted a profit of $2.4 billion (€2.05 billion), or 56 cents per share, marking a 29% increase year-over-year. Revenue climbed 18% to more than $12 billion (€10.24 billion).

Netflix also disclosed that its content spending will rise by about 10% in 2026, with a sharper increase in the first half of the year due to the timing of new releases. The Warner Bros acquisition is expected to add $275 million (€234.57 million) in costs for 2026.

Warner Bros Takeover Intensifies

The competition for Warner Bros escalated on Tuesday when Netflix revised its initial offer—originally including stock—into an all-cash proposal. This adjustment aims to streamline the acquisition and strengthen Warner’s position against a rival bid from Paramount.

While Warner Bros remains committed to finalizing the deal with Netflix, Paramount continues to challenge the agreement and may enhance its counteroffer.

Earlier this month, Paramount informed shareholders of its intention to nominate new board members at Warner to oppose the Netflix deal and filed a lawsuit demanding greater transparency around the transaction.

Competitive Pressures and Regulatory Hurdles

During a conference call on Tuesday, Netflix co-CEO Ted Sarandos referenced the company’s history of overcoming competitors like Walmart and the now-defunct Blockbuster, emphasizing, “We are well-versed in facing competition and adapting to change.”

In addition to fending off Paramount, Netflix must also convince U.S. regulators that adding HBO to its platform—already the nation’s largest streaming service—won’t harm competition or lead to higher prices for consumers.

The ongoing uncertainty has weighed on Netflix’s stock, which has declined by 20% since the Warner Bros Discovery deal was announced last month. This uncertainty is expected to persist throughout much of the year, as the acquisition cannot be completed until Warner spins off its cable TV assets—a process projected to take six to nine months.

Danni Hewson, head of financial analysis at AJ Bell, remarked, “Netflix’s decision to switch to an all-cash offer highlights its determination, but shareholders may hope this move prompts a new counterbid from Paramount Skydance, potentially leading to further rounds in this bidding contest.”

“This is where things could become complicated for Netflix. The company is wary of overpaying, yet it is equally determined not to lose out in the race to secure top-tier content.”