Netflix reported first-quarter revenue growth of 16% to $12.3bn ($12.2bn expected), driven by membership growth, price hikes, and increased ad revenue. Operating profit rose 18% to $4.0bn, with margins up from 31.7% to 32.3%.
Free cash flow rose from $2.7bn to $5.1bn, boosted in part by a $2.8bn Warner Bros-related termination fee, and net debt was at $2.1bn at the end of the period.
For 2026, second-quarter revenue is expected to grow 13% (13.4% expected), with operating margins of 32.6% (34.5% expected). For the full year, revenue growth of 12-14% was unchanged, alongside margin guidance of around 31.5%.
Given Netflix declined to raise its offer for Warner Bros. it has resumed share buybacks. During the quarter 13.5mn shares were repurchased for $1.3bn, leaving $6.8bn remaining on the existing programme.
The shares fell 9.9% in pre-market trading.
Our view
Netflix delivered a solid first quarter on both sales and margins, but the market reaction suggests expectations had crept higher and the outlook felt soft. Many were likely looking for an upgrade to full-year guidance after the surprise March subscription price increases, especially with the stock already priced for mid-teens annual sales growth. With US price hikes now in effect earlier than expected, it is harder to see a clear path for growth to accelerate in 2027.
Co-founder Reed Hastings stepping down as chairman in June creates a leadership headline, but we would not expect any meaningful shift in strategy or operations given the growing influence of the co-CEOs. That was underlined by the recent Warner Bros bid, which marked a move away from Netflix’s historically cautious approach to large deals.
Engagement remains an area to watch, particularly as platforms like YouTube continue to take a growing share of viewing time. New content should, in theory at least, broaden its appeal and keep users on the platform for longer. Time will tell whether this drives the desired growth in engagement.
Netflix continues to perform well across most key metrics. Its ability to reduce churn is firmly rooted in its best-in-class original content, which consistently keeps viewers engaged for longer. While this content is expensive to produce, the business is highly cash generative, giving Netflix the flexibility to fund higher investment.
The ad-supported tier is also gaining traction, proving more popular than many had expected. It allows Netflix to enter new markets and reach users priced out of the fully paid service. While still relatively small at around £1.5bn of revenue in 2025, this figure is expected to double this year.
Internationally, Netflix retains a clear edge through its production and distribution network. Executing localised content well is difficult, but the group has built an enviable track record. This matters because longer-term subscriber growth will need to come from non-US markets.
Acquiring Warner Bros. would have strengthened Netflix’s content engine and offered some defensive benefits, but it would have been a costly way to address engagement concerns. Buybacks can return (though not guaranteed), and while management has said it's back to business, we are left wondering what the next big move might be.
All in, Netflix remains a market leader and a high-quality business. The removal of acquisition noise relieves some pressure, but 2026 is likely to bring a step up in spending alongside weaker margins, which may limit how far investors are willing to push the valuation in the near term.
Environmental, Social and governance (ESG) risk
The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.
According to Sustainalytics, Netflix’s management of material ESG issues is average.
Netflix has to comply with significant and often complex regulations and laws, across a very large number of different countries. The group has a global anti-corruption policy, but this is not publicly disclosed, making its effectiveness difficult to assess.
There are both internal and external audits on IP infringement risk, as well as its independent ethics hotline available for employees. Cybersecurity issues are addressed by the audit committee. But it’s unclear there is any managerial or board-level responsibility for privacy management.
Netflix key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.