Netflix (NFLX) Stock: Why Strong Earnings Couldn’t Stop a 5% Drop

TLDR

• Netflix changed its Warner Bros Discovery offer to all-cash at $27.75 per share, maintaining the $82.7 billion total to fend off Paramount’s competing bid.
• Shares fell over 5% after hours despite Q4 earnings of $0.56 per share beating estimates and revenue hitting $12.1 billion.
• The company reached 325 million paid subscribers but investors focused on future spending plans and the Warner Bros acquisition.
• Netflix paused share buybacks and obtained bridge loans to finance the deal, which would create $85 billion in combined debt.
• 2026 revenue guidance of $50.7-$51.7 billion disappointed some investors as the lower range missed expectations.

Netflix stock dropped more than 5% in after-hours trading Tuesday even though the company crushed Q4 earnings expectations. The decline shows Wall Street cares more about what’s coming than what just happened.

Netflix, Inc., NFLX

The streaming leader posted Q4 revenue of $12.1 billion against analyst predictions of $11.97 billion. Earnings came in at $0.56 per share versus the $0.55 consensus estimate.

Subscriber numbers tell an impressive story. Netflix now has 325 million paid members worldwide, cementing its spot as the biggest paid streaming service on the planet.

But none of that mattered to traders. They’re fixated on Netflix’s next big move.

All-Cash Offer Changes the Game

Netflix revamped its Warner Bros Discovery bid on Tuesday. The company now offers $27.75 per share in pure cash, keeping the total deal at $82.7 billion.

This replaces the previous structure of $23.25 cash plus $4.50 in Netflix stock. The shift makes sense when you look at what happened to Netflix shares lately.

Since announcing the merger December 5, Netflix stock has crashed 15%. Shares closed Friday at $88, way below the original $97.91 floor price.

Paramount remains in the hunt with a $30 per share all-cash proposal. That offer expires today, January 21, putting pressure on both sides.

Warner Bros’ board backs Netflix unanimously. A shareholder vote should happen by April, according to Netflix co-CEO Ted Sarandos.

Future Spending Worries Investors

Netflix’s 2026 revenue outlook ranges from $50.7 billion to $51.7 billion. The bottom of that range disappointed analysts who expected more.

The company plans aggressive spending on content and expansion. That strategy might hurt profit margins near-term even if it pays off later.

Ad revenue doubled last year and should double again in 2026 to roughly $3 billion. Growing the ad business costs money though.

Live content is another big focus. Netflix wants more sports and events, especially outside the United States. The company is building new facilities internationally to make it happen.

Deal Financing Raises Questions

Netflix will stop buying back shares to save cash for Warner Bros. The company lined up bridge loans to help cover costs.

A combined Netflix-Warner Bros would carry about $85 billion in debt. That compares to $87 billion for a Paramount-Warner Bros combination.

But the numbers look different when you check market value. Netflix is worth $402 billion while Paramount sits at just $12.6 billion.

The leverage ratio matters too. Netflix-Warner Bros would run under four times. Paramount-Warner Bros would hit around seven times.

Netflix holds investment-grade credit ratings. Paramount’s bonds are junk-rated by S&P, which Warner Bros mentioned when rejecting their bid.

Warner Bros called Paramount’s $30 offer inadequate after weighing “price and numerous risks, costs and uncertainties.” The board values the planned Discovery Global spinoff between $1.33 and $6.86 per share depending on the calculation method used.

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