Netflix shares have fallen more than 5% in after-hours trading despite earnings beating Wall Street estimates.
Netflix capped off last year with another solid financial performance, although the firm warned of potential storm clouds ahead, notably linked to a proposed deal with Warner Bros Discovery.
The fourth-quarter results announced on Tuesday eclipsed the projections of Wall Street analysts, but Netflix's report also noted that the video service ended the year with more than 325 million worldwide subscribers. Since 2024, that means the firm has added about 23 million subscribers.
The 2025 increase marked a dramatic slowdown from the 41 million customers picked up during 2024, amplifying investor worries that Netflix's growth has peaked since the 2022 introduction of a low-priced, advertising-supported version of its service that triggered a massive surge in subscribers.
Management also forecast a profit for the January-March period that was below analysts' predictions and announced Netflix would stop buying back its own stock while trying to complete the Warner Bros deal.
Even though its ad sales are expected to double, Netflix also projected its revenue growth would taper off from 16% in 2025 to 12%-14% this year.
“Overall, this points to a challenging start to the year," said Investing.com analyst Thomas Monteiro.
Netflix's shares sank more than 5% in extended trading, despite the fact that its profit and revenue for the past quarter were better than anticipated. The company earned $2.4bn (€2.05bn), or 56 cents per share, a 29% year-on-year increase. Revenue rose 18% from the previous year to more than $12bn (€10.24bn).
The streamer also said that its content costs would increase by around 10% in 2026, with higher growth in the first half of the year due to the timing of title launches. It expects $275mn (€234.57mn) in added costs in 2026 linked to the Warner Bros acquisition.
A battle for Warner
The bidding war for Warner took another turn earlier on Tuesday when Netflix converted its original offer that included a stock component into an all-cash deal. Such a move is designed to simplify the takeover process and make it easier for Warner shareholders to resist overtures from rival bidder Paramount.
Although Warner Bros has reiterated its commitment to getting the Netflix deal done, Paramount isn’t showing any signs of backing down and could still sweeten its counteroffer.
Earlier this month, Paramount told shareholders that it would nominate directors to Warner's board to vote against the approval of its deal with Netflix, as well as filing a lawsuit seeking to force fuller disclosure around that deal.
Netflix co-CEO Ted Sarandos seemed to send a warning shot across Paramount's bow during a Tuesday conference call as he recalled fending off rivals such as Walmart and the now-vanquished Blockbuster video chain during the company's days as a DVD-by-mail rental service. “We are no strangers to competition and we are no strangers to change,” Sarandos said.
Besides having to fend off Paramount, Netflix will also need to persuade US regulators that adding HBO to a streaming service that has the most subscribers in the country won’t stifle competition and drive up prices.
The uncertainty has been reflected in Netflix’s stock price, which has fallen by 20% since its agreement with Warner Bros Discovery was unveiled last month. It’s a cloud likely to hang over Netflix through most of this year since the company doesn't expect to complete its purchase until Warner spins off its cable TV business — a process expected to take six to nine months.
"Its move to stump up an all-cash deal demonstrates how much Netflix wants its prize, but shareholders will be hoping the same desire might lead to a fresh counter bid from Paramount Skydance and potentially a few more rounds in this bidding war," said AJ Bell head of financial analysis Danni Hewson.
"That’s where things could get sticky for Netflix. It doesn’t want to overpay but neither does it want to be bested in this race for content domination."
