Netflix reported fourth-quarter revenue growth of 18% (17% expected), driven by membership growth, price hikes, and increased ad revenue.
Operating profit rose 30% to $3.0bn, with margins up from 22.2% to 24.5%. Both came in ahead of expectations, driven by the top-line growth.
Free cash flow rose 36% to $1.9bn, and net debt was at $5.4bn at the end of the period.
For 2026, first-quarter revenue is expected to grow 15% (16% expected), with operating margins improving by 0.4 percentage points (2.6 expected). For the full year, revenue growth of 12-14% was broadly as expected, but margin guidance of around 31.5% was lower.
Netflix has amended its Warner Bros. offer to all cash and will be suspending share buybacks to help fund the acquisition.
The shares fell 5.4% in pre-market trading.
Our view
Fourth quarter results were strong, but markets were more interested in the outlook, which points to higher costs and softer profit growth than expected. We understand the reaction, but there is a positive spin: the higher costs are largely linked to investment in content, a key driver of engagement.
Netflix continues to perform well across most measures that matter. Its ability to reduce churn (customers flip-flopping to rivals) is firmly rooted in its best-in-class original content. While it's expensive to make, it does keep eyeballs on screens in a bigger way. Add in a cash-generative business, and Netflix can afford to raise content spend.
The introduction of an ad-supported product is proving more popular than many could have hoped. It allows Netflix to penetrate new markets and tap into users who are priced out of the fully paid service. It's still a small slice, generating about £1.5bn in revenue in 2025, but that’s expected to double next year.
The group also has a market-leading international production and distribution network. Doing localised content right isn't easy, but Netflix has an enviable track record here. This is important because longer-term subscriber growth will need to come from emerging markets.
The bigger ongoing story revolves around a blockbuster deal to acquire Warner Bros.’ studios and streaming divisions. The transaction is far from finalised, with Paramount still in the mix as a rival bidder and a lengthy regulatory process ahead.
The acquisition would deliver a slate of top-tier franchises, boost Netflix’s production capabilities, and defend against legacy competitors looking to gain ground. There are obvious cost savings from combining operations, but it’s not clear that this meaningfully improves engagement.
HBO Max, Warner Bros.’ streaming service, shares a large portion of its subscriber base with Netflix, so there won't be a wave of new customers. For now, both platforms will remain separate, a wise move as merging could raise pricing challenges. In short, we see benefits, but don’t think this move eases concerns that Netflix has hit peak engagement.
Cash flow is good, and the balance sheet can absorb the c.$52bn of new debt it’ll need to take on to help fund the Warner Bros. deal. Still, bringing down debt would be a key priority.
All in, Netflix is a market leader and a quality business, with a valuation that suggests plenty of upside. But 2026 is shaping up as a year of higher costs and tougher optics. Add in the lingering uncertainty around the Warner Bros. deal, and shares may struggle to regain momentum 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.