Streaming’s Final Boss

In the arena of global streaming, Netflix has long transitioned from a disruptor to the undisputed leader and potentially winner. However, the company’s Q4 2025 earnings report, suggests that being the leader may no longer be enough to get a premium multiple that Netflix has long demanded. To make sure, they continue their growth trajectory, Netflix is now seeking to redefine the very boundaries of its empire. While Q4 earnings were solid with a small beat on the top and bottom lines and came with another milestone in subscriber count, the Q1 guidance was a bit light sending the stock down right after the call.

Right now, Netflix is in an interesting period in its history and with a pivot toward one of the most significant media acquisitions in history, Netflix is signaling that its next phase of growth will be defined by scale, live content, consolidation, a presence at the box office and potentially other forms of content like podcasts, games and potentially more.

The Q4 Scorecard: Beating the Street

Netflix’s Q4 2025 showed a company that continues to have operational efficiency and pricing power. The company reported revenue of $12.05 billion, surpassing analyst expectations of $11.97 billion and representing an 18% year-over-year increase. Diluted earnings per share (EPS) came in at $0.56, beating the consensus estimate of $0.55.

Netflix hit a 29.5% operating margin for the full year, a 2.8% increase over 2024. This margin expansion is particularly impressive given the heavy investments Netflix has made in its nascent advertising tier and its expansion into live sports and events.

Subscriber growth remains the most watched metric in the streaming world, and Netflix did not disappoint. The company added millions of new members in the quarter, crossing the historic 325 million paid membership milestone. This growth was fueled by a mix of must-see content and the continued crackdown on password sharing, which has effectively converted borrowers into subscribers. According to Netlfix, they are now serving an audience approaching 1 billion viewers worldwide which does leave one to wonder how much more growth is ahead.

The interesting thing about this growth is that while membership was up about 25 million since 2024(or about an 8% increase), their hours viewed metric was up just shy of 2% which means that viewership per viewer seems to be dropping(unless most of those additions happened towards the latter part of the year).

Content Hits and Cultural Gravity

Netflix’s success in Q4 was underpinned by a diverse and popular content slate. The second half of 2025 saw a 2% increase in total view hours, driven largely by a 9% rise in the viewing of branded originals which did mean that non-branded content was actually down.

The quarter was headlined by the return of global phenomena Stranger Things. Engagement remains a key for Netflix; by keeping users within their ecosystem through a relentless stream of hits, ranging from prestige dramas and reality TV to high-octane films, the company has maintained a low churn rate that is the envy of the industry. Furthermore, the company’s move into live events, such as the WWE and now the upcoming World Baseball Classic in Japan along with things such as high-profile boxing matches, has started to pay dividends, proving that Netflix can compete for the appointment viewing dollars traditionally reserved for linear television.

Q1 Guidance: The Conservative Outlook

Despite the Q4 celebration, Netflix provided guidance for Q1 2026 that was slightly below Wall Street’s more optimistic projections. The company expects revenue for the full year 2026 to fall between $50.7 billion and $51.7 billion, representing 12% to 14% growth. That’s somewhat in line with the 13% the street expected but I think investors were hoping for a bit more. Their operating margin target of 31.5%(inclusive of 275m of acquisition-related expenses or a 0.5% impact) was short of the 32.6% the market was expecting.

Management attributed this cautious outlook to a tougher year-over-year comparison as the initial surge from the password-sharing crackdown begins to normalize. Additionally, while the ad-supported tier is growing rapidly, with ad revenue expected to roughly double in 2026(after growing 2.5X to $1.5B in 2025), it is still not yet a primary driver of the top line. Beyond that management is expecting content costs to go up 10% as well putting some pressure on the expectations on larger margin expansion. This slight miss in guidance caused a minor tremor in the stock price, as investors questioned whether the organic growth engine is finally beginning to cool and if the margin growth expectations investors had(with 29 estimated margins expected to be 9% higher than 25 actuals) were too aggressive. .

The Good, The Bad, and The Streaming Landscape

What’s Going Well: Netflix is currently in a virtuous cycle. Its massive scale allows it to outspend competitors on content while simultaneously generating significant free cash flow, a feat most other streamers are still struggling to achieve. Their advertising business is scaling at an impressive clip, and their tech stack remains the gold standard for personalization and user experience. The pivot to live and sports-adjacent content is also opening up new demographics and keeping the service sticky. After all, where else are you going to be able to watch Alex Honnold free-climb a skyscraper live?

The Position of Power: In the streaming wars, Netflix has effectively won. While Disney+, Max, and Amazon Prime Video remain formidable, they are often viewed by consumers as secondary or tertiary subscriptions. Netflix remains the utility of entertainment, the first app users open when they turn on their TV. The quantity of content offered by Netflix is much higher than what you can get anywhere else and while other services may have a higher quality output, if you just want to pick one service and not cycle them, Netflix is likely the choice you’ll make. After all, whatever is on those other services today will likely be licensed to Netflix in a few years.

What’s Going Poorly: The primary headwind for Netflix is the law of large numbers. With 325 million subscribers, the easy growth has been captured. Future growth must come from developing markets with lower Average Revenue Per Member (ARM) or from extracting more value from existing members through price hikes, a strategy that eventually hits a ceiling of consumer resentment. Furthermore, while the ad tier is growing, the competitive landscape for digital ad dollars is fierce, with Netflix fighting giants like Google, Meta, and Amazon. I guess there’s a reason they’re trying to acquire WBD which will give them an instant boost of close to $20B in revenue even if it’s at lower margins.

The WBD Acquisition: An $82.7 Billion Gambit

The most seismic development in the Netflix story is the pending acquisition of Warner Bros. Discovery (WBD). The deal is a massive $82.7 billion enterprise value transaction. Originally made as a stock-and-cash mix offer, Netflix recently made a strategic pivot to move toward an all-cash offer to provide certainty of value following volatility in its own stock price and continued pressure from Paramount’s competing all-cash offer.

This acquisition is a clear play for total dominance. By absorbing WBD, Netflix would gain access to the HBO library, arguably the most prestigious catalog in television history, along with the DC Universe, IP like Harry Potter and a massive slate of theatrical films. It would also significantly bolster Netflix’s sports rights, bringing various sports into the fold of Netflix’s existing contracts.

On top of all that, it would also give Netflix a studio with which to create their own content and be less dependent on outside parties for that. Plus, they’d get a complimentary streaming service in HBO Max, one that’s still expanding internationally and would be ready to be bundled with Netflix in a variety of bundles.

It also doesn’t hurt that it brings with it an instant boost in revenue and free cash flow.

Funding the Deal and the Debt Burden: Transitioning to an all-cash deal requires a massive capital outlay. Netflix finished 2025 with roughly $9 billion in cash and cash equivalents and $14B in debt. To fund a deal with an $82.7 billion enterprise value, of which $72 billion represents the equity value, Netflix is tapping into significant debt financing.

The company has secured over $42.2 billion in debt capacity from major lenders including Wells Fargo, BNP Paribas, and HSBC. This moves Netflix from a relatively debt-light company to one with a substantial leverage profile.

While Netflix’s investment-grade balance sheet and projected $12 billion in free cash flow for 2026 provide a cushion, the interest expense on this massive debt load will become a factor in its future earnings reports and impact margins negatively until some of it is paid down. In order to keep the debt load manageable, Netflix is also pausing stock buybacks to build cash on the balance sheet in preparation for the acquisition.

Impact on Revenue and Margins

If the $82.7 billion WBD deal closes, the financial profile of Netflix will transform overnight.

1. Revenue: Combined revenue would likely get close to if not past $70 billion, making Netflix a media titan that’s getting closer to the Disney empire.
2. Margins: In the short term, margins might face pressure due to integration costs and the lower-margin nature of WBD’s growing but immature streaming business and a less favorable margin profile of the studios business. However, in the long term, the synergy play could be significant. Netflix can shutter redundant streaming platforms (like the standalone Max app), migrate all users to the Netflix interface with an HBO buy-up, and drastically reduce marketing and technical overhead. However, it is important to note that all of this could take quite some time and the post acquisitions margins could be lower than standalone Netflix for quite some time. After all, Warner Bros’ isn’t exactly known for smooth and profitable mergers historically.
3. Content Amortization: The combined library would allow Netflix to reduce its reliance on third-party licensing even further, potentially bringing down the cost of revenue as a percentage of total sales over time. Eventually having Max on the Netflix platform which already has significant eyeballs on it could help that platform grow faster than it would have on its own as well.

The Regulatory Wall and the $5.8 Billion Breakup Fee

The biggest risk to the WBD acquisition isn’t financial; it’s regulatory. The current antitrust environment in the U.S. and the EU is increasingly hostile to mega-mergers that consolidate market power. A combination of the world’s largest streamer and one of its most storied content producers will undoubtedly face intense scrutiny from the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

The risk of the deal falling through is substantial. If regulators successfully block the merger, Netflix is on the hook for a massive $5.8 billion termination fee, one of the largest in corporate history. This fee represents roughly 7% of the deal’s value, significantly higher than the typical 3-4% standard. Paying such a fee without receiving any assets would be a big blow to Netflix’s balance sheet and a setback for their global growth strategy.

Valuation: Is Netflix a Buy?

The Netflix stock has experienced significant volatility over the last few months. After reaching all-time highs, it has reversed course falling almost 30% in the last 6 months and is now down another 5% or so following the conservative Q1 guidance and the uncertainty surrounding the WBD debt load. Still, the stock is basically back to where it traded just a year ago and is just back to trading where it was back then in terms of forward multiples.

The Bull Case: At current levels, Netflix is trading at a more reasonable Forward P/E ratio than it was 6 months ago and is back closer to the 30x multiple it’s usually gotten in the past few years(outside of the 17x multiple it dropped to in 2022). If you believe in the WBD acquisition, and the company’s ability to integrate it, Netflix is currently a reasonable valuation. The company is still growing in the teens, generating significant cash-flow and has a dominant market position and an expanding ads business that provides a high-margin revenue stream.

The Bear Case: Skeptics argue that Netflix is still expensive relative to its slowing organic growth. The $82.7 billion WBD deal is a high-risk, high-reward move that could saddle the company with too much debt just as interest rates remain volatile. If the deal is blocked, Netflix is left with a massive $5.8 billion breakup fee and a growth problem that it will have to solve through more expensive content creation or even riskier ventures. As growth, slows, sometimes these more mature companies get re-rated to a 4-5% free cash flow yield and Netflix is currently closer to a 3% forward free cash flow yield which could mean mediocre returns going forward even if growth continues.

Conclusion

Netflix is at a crossroads. Its Q4 2025 earnings proved that the core business is healthier than ever, but management’s eyes are on a much larger prize. The attempt to acquire Warner Bros. Discovery is a bold, winner-take-all move designed to make sure Netflix is the undisputed champ of streaming for years and years to come.

However, I do think Netflix has another problem and it’s not the streaming competitors. It’s things like YouTube, TikTok and Instagram which are dominant players in the mindsets of younger people. It’ll be interesting to see how navigates those waters as those groups age into the typical Netflix buyer bracket and it seems like their forays into podcast, games and other forms of media are a way to see if they can capture more eyeballs and more viewership hours. I do also wonder if short-form content of some sort is next.

Still as it stands right now, for investors, the decision to buy Netflix depends on their appetite for risk. If the WBD deal succeeds and regulators allow it to pass, Netflix will become an unstoppable force in global media if they can integrate it well. However, it’s important to note that such large mergers are never without its pain points and it may take a while for things to work their way through in a positive manner. If it fails, the company will remain the leader of the pack, but it will face the difficult task of proving to Wall Street that it can continue to grow in a world where it has already reached the edges of the map.

One thing is certain: Netflix is no longer just a tech company that streams movies; it is a global media superpower navigating the most complex transition in its history. For me, in this market, Netflix remains a company that I’d be interested in owning but would likely need a price point closer to $70 which in this market is certainly a possibility.

Disclaimer: I may be long other stocks mentioned in this article in the near future. This article is for informational purposes only and does not constitute financial advice. Investors should perform their own due diligence or consult with a financial advisor before making any investment decisions.