Netflix tops estimates but shares fall over Warner bid

Netflix beat Wall Street’s revenue and earnings estimates for its holiday quarter on Tuesday, yet its shares dropped more than 4% in after-hours trading, Reuters reported.

The decline comes as the streaming giant remains embroiled in a high-stakes bidding war for Warner Bros Discovery.

The company released its quarterly results shortly after amending its $82.7 billion merger agreement with Warner Bros, a move aimed at fending off a hostile bid from Paramount Skydance.

“Historically, Netflix has not shied away from doing what’s right for long-term growth even at the expense of near-term negative share price reaction,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors. “That seems to be the case again.”

Netflix reported earnings on the same day it announced its all-cash deal for Warner Bros Discovery, a transaction that all but eclipsed its fourth-quarter results. The company reported revenue of $12.1 billion for October through December, modestly exceeding forecasts of $11.97 billion, according to analysts surveyed by LSEG. Adjusted per-share earnings came in at 56 cents, ‌slightly above estimates of 55 cents per share.

The company said its results were driven in part by membership gains. The streaming service crossed 325 million paid subscribers in the quarter, up from 300 million reported in late 2024.

Nielsen reported that Netflix's monthly viewership rose 10% in December, thanks largely to the final season of hit sci-fi series "Stranger Things," which generated 15 billion viewing minutes. The service also streamed two National Football League games on Christmas Day and released a third film in the "Knives Out" murder-mystery ‍series.

Netflix offered a full-year revenue forecast of $50.7 billion to $51.7 billion for 2026 - a projection that, at the low end, fell below analysts' estimates of $50.98 billion. Its projections for the year incorporate a year-over-year doubling of advertising revenue, which Chief Financial Officer Spencer Neumann told investors would reach about $3 billion.

Co-CEO Ted Sarandos said the company plans to invest in new initiatives, such as expanding live events with the addition of those taking place ⁠outside of the U.S., like the forthcoming World Baseball Classic in Japan. It also expanded into video podcasts, adding stars like Pete Davidson and Michael Irvin.

Netflix is adding operation centers ‍in the UK and Asia to support the growth of live events outside the domestic market, and the company looks to build its ad business, said Co-CEO Greg Peters. The company is offering a wider ‌array of ‌advertising formats, including interactive video ads, as well as those that "mix and match creative elements to drive better business outcomes," he said.

The results come on the heels of Netflix amending its merger agreement to an all-cash offer for the Warner Bros film and television studios, its extensive content library and major entertainment franchises, including "Game of Thrones," "Harry Potter" and DC Comics' superheroes like Batman and Superman.

"Our revised all-cash agreement will enable an expedited timeline to a stockholder vote and provide greater financial certainty," Sarandos said in a statement accompanying Tuesday's amended bid.

In its note to investors, Netflix said ⁠the Warner Bros acquisition will provide it with ⁠an even broader and higher-quality selection of movies and shows for its subscribers, while it will be able to offer more personalized, flexible subscription offers with the addition of HBO Max.

The company said it obtained commitments for a $59 billion bridge loan on December 4 to support the Warner acquisition. On Monday, it increased the bridge loan commitment by $8.2 billion to support its all-cash $27.75 per share offer.

Netflix also told investors it would pause share buybacks to accumulate ‍cash to help fund the Warner deal. It has already incurred $60 million in costs related to securing financing.

"The pause in the buyback they announced is really no surprise, but if we take a step back, Netflix is coming off a couple of years where they've really held content spending more or less flat over the last few years, and that's allowed for some pretty sharp margin expansion," said John Belton, portfolio manager for Gabelli Funds, noting that investment cycles ebb and flow.

"If this Warner Brothers deal closes, one of the benefits is ‍going to be a much bigger content library, which could, in theory, mean slower, less need to invest so aggressively to grow that library over time," said Belton.

Stabil.Az