Netflix shares fall as guidance disappoints
Despite an earnings beat, shares in Netflix fell overnight as the company’s margin outlook fell short of expectations
Shares in streaming giant Netflix fell approximately 6% overnight following an earnings report that delivered on the fundamentals but left investors pessimistic over the future outlook.
Netflix (NASDAQ:NFLX) shares were once counted among the world’s top stocks during the ‘FAANG’ days, but in recent years it has played second fiddle to the new formulation of the Magnificent Seven. Netflix stocks fell out of favour post-pandemic as the end of lockdown conditions posed a headwind for businesses associated with the stay-home economy.
The company is also viewed as less central to the artificial intelligence (AI) boom that is currently dictating stock market sentiment compared to US big tech stocks such as Nvidia.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Since then, markets have been unconvinced about Netflix. Shares gained 5.2% through 2025, trailing the S&P 500 by some distance through the year.
In mid-November, Netflix shares peaked at $115, up 30% for the year.
But the rally was reversed when investors appeared to sour on the company’s plans to acquire film studio Warner Bros. Discovery (NASDAQ:WBD) (WBD).
“Splashing out so much cash was never going to make the share price jump with delight,” said Danni Hewson, head of financial analysis at AJ Bell.
Shares in Netflix fell 3% on 5 December following its announcement of the plan to buy WBD.
Netflix earnings impress, but guidance leaves investors cold
The latest dent to Netflix’s shares follows its Q4 earnings release on 20 January.
Netflix delivered $45.2 billion revenue during the quarter, up 17.6% year-on-year. Net income – which included approximately $60 million in costs related to financing the WBD acquisition – rose 29% to $2.4 billion, resulting in earnings per share rising 30% to $0.56.
“Revenues, margins and profits all beat expectations, but markets don’t dwell on the rear‑view mirror for long,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The issue was guidance.”
Specifically, the outlook for Netflix’s profitability undershot market expectations. Netflix expects its net margin to be 31.5% in 2026, above the 29.5% it achieved in 2025 but, crucially, below the 32.6% that analysts had anticipated.
“Content spend is doing the damage, a timely reminder that even streaming’s gold standard can’t afford to take its foot off the creative gas,” said Britzman.
Is Netflix stock a buy?
On average, analysts expect Netflix to post solid gains over the coming 12 months.
The consensus 12 month price target among analysts polled by data provider LSEG (London Stock Exchange Group) is $120, implying around 37.5% growth from Netflix’s 20 January close price.
Netflix stock isn’t cheap: it trades at around 27 times expected earnings and 34 times trailing earnings (as of 20 January). It will have to keep consistently growing its earnings and profitability if it is to justify this valuation.
Investors considering investing in Netflix should conduct thorough research and consider the risks involved carefully before doing so.
-
What the government’s baby boomer retirement data says about the future of pensionsA study of the retirement routes of people born in 1958 paints a worrying picture for people’s pension savings
-
An experienced investor’s end of tax year checklistThe clock is ticking down before the end of the 2025/26 tax year, when any tax-free savings and investment allowances are lost. For experienced investors, though, the deadline for some tax-saving schemes is even earlier.
-
What is physical AI, and how can you invest in it?Artificial intelligence is increasingly taking physical form and could completely transform how we live. How can investors gain exposure?
-
A niche way to diversify your exposure to the AI boomThe AI boom is still dominating markets, but specialist strategies can help diversify your risks
-
New PM Sanae Takaichi has a mandate and a plan to boost Japan's economyOpinion Markets applauded new prime minister Sanae Takaichi’s victory – and Japan's economy and stockmarket have further to climb, says Merryn Somerset Webb
-
Early signs of the AI apocalypse?Uncertainty is rife as investors question what the impact of AI will be.
-
Three key winners from the AI boom and beyondJames Harries of the Trojan Global Income Fund picks three promising stocks that transcend the hype of the AI boom
-
'AI is the real deal – it will change our world in more ways than we can imagine'Interview Rob Arnott of Research Affiliates talks to Andrew Van Sickle about the AI bubble, the impact of tariffs on inflation and the outlook for gold and China
-
Three promising emerging-market stocks to diversify your portfolioOpinion Omar Negyal, portfolio manager, JPMorgan Global Emerging Markets Income Trust, highlights three emerging-market stocks where he’d put his money
-
How to invest in the new breed of payment providersUpstart payment providers are taking the world by storm. It’s time for investors to buy in, says Rupert Hargreaves
