Netflix Beats Earnings with Record 325M Subscribers But Stock Plunges on Warner Bros Deal Restructure
LOS GATOS, CA – January 21, 2026 — Netflix delivered better-than-expected fourth-quarter earnings Tuesday after market close, surpassing 325 million global subscribers for the first time. However, shares tumbled nearly 5% in extended trading after the streaming giant announced it’s converting its proposed Warner Bros. Discovery acquisition to an all-cash deal and pausing share buybacks.
The Numbers: Strong Quarter
Q4 2025 Key Metrics:
| Metric | Actual | Estimate | Year Ago | YoY Change |
| EPS | $0.56 | $0.55 | $0.43 | +30.2% |
| Revenue | $12.05B | $11.97B | $10.24B | +17.7% |
| Net Income | $2.42B | — | $1.87B | +29.4% |
| Global Subscribers | 325M | 320M | 278M | +16.9% |
| Net Adds | 16.4M | 13.8M | 13.1M | +25.2% |
Netflix’s 56 cents per share earnings beat Wall Street’s 55-cent estimate by 1.8%. Revenue of $12.05 billion exceeded expectations of $11.97 billion, driven by membership growth, price increases across multiple markets, and surging advertising revenue.
325 Million Milestone
The subscriber count represents a major psychological threshold. Netflix now reaches:
- North America: 84 million (62% market penetration)
- Europe/Middle East/Africa: 98 million (38% penetration)
- Latin America: 52 million (44% penetration)
- Asia-Pacific: 91 million (18% penetration – huge upside)
Co-CEO Ted Sarandos: “Crossing 325 million members validates our strategy of investing in quality content while maintaining pricing power in an increasingly competitive environment.”
Advertising Revenue Explodes
The quarter’s biggest surprise: advertising revenue grew 150% to $625 million. For full-year 2025, Netflix generated over $1.5 billion in ad revenue—more than 2.5x the 2024 figure.
Ad Business Highlights:
- Ad-supported tier: 23% of new sign-ups in enabled markets
- Premium CPM rates: $55-$65 (highest in streaming)
- 2026 projection: Ad revenue will double to $3+ billion
- Partnerships: Microsoft (targeting), Walmart, Target, Etsy (shopping)
Netflix announced it will introduce advertising within ChatGPT conversations and shopping experiences in 2026, following OpenAI’s December confirmation of ad plans.
The Warner Bros. Discovery Bombshell
Markets reacted negatively to Netflix’s announcement that it has amended its December proposal to acquire Warner Bros. Discovery’s streaming and film studio assets. Originally a cash-and-stock deal valued at $27.75 per WBD share ($72 billion equity value), the restructured offer is now all-cash.
Deal Details:
- Original: Mixed cash and Netflix stock
- New Structure: 100% cash payment
- Total Value: $72 billion
- Financing: New debt ($30-40B), bond offerings, capital reallocation
- Impact: Share buybacks paused indefinitely
What Netflix Gets: ✓ HBO Max platform (87M subscribers) ✓ Warner Bros. film studio (DC Comics, Harry Potter IP) ✓ 6,500+ film titles, 50,000+ TV hours ✓ Production facilities worldwide ✓ Exclusive theatrical distribution rights
Why Markets Are Concerned
#1: Massive Debt Load Netflix will take on unprecedented leverage for a tech-oriented streaming company, potentially $30-40 billion in new borrowings.
#2: Integration Risks Merging distinct corporate cultures and tech platforms is enormously complex. Previous media mega-mergers (AOL-Time Warner, AT&T-Time Warner) often destroyed value.
#3: Regulatory Uncertainty The DOJ and FTC will scrutinize combining Netflix’s 325M subscribers with HBO Max’s 87M. Lawmakers question market concentration.
#4: Hostile Competition Paramount Skydance’s counter-offer for all of WBD could drive up Netflix’s ultimate acquisition cost.
#5: Strategic Distraction Some analysts worry owning a traditional film studio could dilute Netflix’s streaming-first focus and drag it into declining theatrical models.
Michael Pachter, Wedbush Securities: “Netflix has been the most disciplined streaming operator. Acquiring Warner Bros. potentially saddles them with legacy assets and competing priorities that could dilute execution.”
2026 Guidance: Strong Growth Expected
Netflix provided 2026 revenue guidance of $50.7-$51.7 billion, representing 11-13% growth:
2026 Projections:
| Metric | Low | High | Consensus |
| Revenue | $50.7B | $51.7B | $51.1B |
| Operating Margin | 24% | 26% | 25% |
| Free Cash Flow | $8.5B | $9.2B | $8.9B |
| New Subscribers | 22M | 28M | 25M |
| Ad Revenue | $2.8B | $3.4B | $3.1B |
Guidance excludes Warner Bros. Discovery impacts beyond basic HBO Max subscriber conversion, citing regulatory uncertainties.
Password Sharing: Mission Accomplished
Netflix’s global paid sharing rollout exceeded expectations:
- Converted 28M password-sharers to paying subscribers in 2025
- Generated $2.1B additional annual revenue
- Churn rate only 3.1% vs. projected 4-5%
- Customer satisfaction remained above 8/10
This demonstrates Netflix’s pricing power—users value the service enough to pay for individual access rather than abandon it entirely.
Content Winners
Top Q4 2025 Performers (Viewing Hours):
- Squid Game: Blood & Honor – 1.5B hours
- Stranger Things Season 6 – 1.2B hours
- Avatar: The Last Dragon – 890M hours
- Wednesday Season 3 – 720M hours
- The Crown Finale – 680M hours
Non-English content accounted for 38% of total viewing (up from 31% year-ago), validating international investment strategy.
Competitive Landscape
Streaming Platform Comparison (Q4 2025):
| Platform | Subscribers | Growth | ARPU |
| Netflix | 325M | +4.5M | $13.75 |
| Amazon Prime Video | 310M | +3.8M | $6.50 |
| Disney+ | 285M | +2.1M | $9.20 |
| Paramount+ | 92M | -0.6M | $7.15 |
| Apple TV+ | 78M | +1.2M | $8.99 |
Netflix maintains pricing power and subscriber growth while competitors face churn and margin pressure.
AI and Technology Investment
Netflix highlighted AI initiatives driving performance:
- Predictive analytics improving greenlight decisions (+23% hit rate)
- Personalized artwork/trailers (+31% click-through rates)
- Automated dubbing/subtitles (-40% costs, expanded languages)
- Dynamic bitrate optimization (reduced bandwidth costs)
These investments support margin expansion even while increasing content spending.
Analyst Reactions: Mixed Views
Upgrades:
- Goldman Sachs: $5,200 target (maintains Buy)
- Bank of America: $5,000 target (Buy)
- JP Morgan: $4,950 target (Overweight)
Downgrades:
- MoffettNathanson: Neutral from Buy (WBD deal concerns)
- Wedbush: Hold from Buy (integration risks)
Michael Nathanson (MoffettNathanson): “While operational execution remains excellent, Warner Bros. Discovery acquisition introduces too many unknowns. We prefer clarity before regaining conviction.”
Stock Performance
After-Hours Trading (January 20, 2026):
- Netflix: $87.26 (-$4.62, -5.0%)
- Volume: 3.2x average
- 52-week range: $67.40 – $102.85
- Market cap: ~$376 billion
The 5% decline erased approximately $20 billion in market value—reflecting investor concerns about financial flexibility and integration risks.
What’s Next
Key Dates:
- February 15: Paramount Skydance expected counter-offer
- March 1: DOJ initial review period ends
- March 31: Shareholder vote on WBD acquisition
- April 16: Q1 2026 earnings report
- Q3 2026: Expected deal closure (if approved)
Bottom Line
Netflix delivered an operationally excellent quarter that would normally drive stock gains. The combination of accelerating subscriber growth, exploding ad revenue, improving margins, and strong content checked every box.
However, restructuring the Warner Bros. Discovery deal as all-cash and pausing buybacks introduced enough uncertainty to overwhelm positive results. Investors now face a binary outcome: either an unstoppable content powerhouse combining streaming and Hollywood, or an over-leveraged company that overpaid for declining assets.
The market will render its verdict as financing, regulatory, and integration details emerge. For now, Netflix finds itself in the unusual position of beating expectations while disappointing shareholders.
