3 Reasons to Hold Netflix Stock Following Solid Q4 Earnings
Netflix NFLX delivered a robust fourth-quarter 2025 performance that exceeded expectations across multiple financial metrics, yet the stock’s recent weakness suggests investors may want to carefully evaluate their entry point before adding new positions. (Read More: Netflix Beats Q4 Earnings Estimates, Crosses 325M Subscribers)
The streaming giant reported revenues of $12.05 billion, representing an 18% year-over-year increase. The top line outpaced the consensus estimate in the fourth quarter. Earnings per share reached 56 cents, marking a 31% improvement from the prior-year period and surpassing analyst projections. The company crossed a significant milestone by surpassing 325 million paid memberships globally, approaching an audience of nearly 1 billion people worldwide.
Operating performance demonstrated substantial margin expansion as operating income climbed 30% year over year to $2.96 billion, while operating margin improved 2 percentage points to 24.5%. The company generated non-GAAP free cash flow of $1.87 billion during the quarter, up from $1.38 billion in the comparable period. These metrics underscore operational efficiency gains even as the company continues investing heavily in content production and technology infrastructure.
Netflix, Inc. Price and Consensus
Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote
Strong Financial Trajectory and Strategic Initiatives
Management provided encouraging guidance for 2026, projecting full-year revenues between $50.7 billion and $51.7 billion, implying growth of 12% to 14%, driven by membership expansion, pricing optimization, and accelerating advertising revenues. The company expects advertising revenues to roughly double in 2026 from 2025 levels, building on the more than 2.5-times growth achieved during 2025 to surpass $1.5 billion.Â
First-quarter 2026 revenues are anticipated at $12.16 billion, indicating 15.3% year-over-year growth. The operating margin target of 31.5% for 2026 represents a substantial 2-percentage-point expansion from the 29.5% achieved in 2025.
The advertising business continues maturing as the company deploys artificial intelligence tools to enhance campaign effectiveness. During 2025, Netflix began testing AI-powered solutions enabling advertisers to create custom advertisements based on its intellectual property, with plans to expand these capabilities throughout 2026. The platform also introduced automated workflows for ad concept development and utilized advanced AI models to streamline campaign planning processes, significantly accelerating time-to-market for advertising partners.
Content Expansion Through Strategic Partnerships
Netflix recently announced multiple content distribution partnerships that broaden its programming diversity. The company secured deals with Spotify and The Ringer, iHeartMedia, and Barstool Sports to bring more than 30 video podcasts to the platform starting in January 2026. These partnerships include popular programs spanning sports, culture, lifestyle, and true crime genres, featuring personalities like Bill Simmons, Chelsea Handler, and Karen Kilgariff. The video podcast strategy targets younger demographics while creating additional inventory for the growing advertising business.
The company’s live programming strategy continues to generate outsized engagement relative to viewing hours. The Jake Paul versus Anthony Joshua fight attracted a 33 million average minute audience, while NFL Christmas Day games drove significant subscriber acquisition. According to Nielsen data, Netflix’s share of United States television time reached an all-time high of 9% in December 2025, up 0.5 percentage points year over year.
The 2026 content slate features more than 160 confirmed titles spanning scripted series, films, documentaries, and live programming. Major releases include Greta Gerwig’s Narnia adaptation scheduled for December 2026, the Peaky Blinders film featuring Cillian Murphy’s return as Tommy Shelby, and Enola Holmes 3 starring Millie Bobby Brown. The lineup includes high-profile films, such as Here Comes The Flood, Office Romance and 72 Hours starring Kevin Hart. Series highlights include the 2nd season of BEEF, Bridgerton S4, Avatar: The Last Airbender continuation, and the final seasons of Outer Banks and Queer Eye. Live programming expands with the MLB Field of Dreams game and Six Kings Slam tennis event.
Transformational Warner Bros. Acquisition
The company announced a definitive agreement in December 2025 to acquire Warner Bros., including film and television studios, HBO, and HBO Max, in a transaction valued at approximately $82.7 billion total enterprise value. The deal was subsequently amended to an all-cash structure at $27.75 per Warner Bros. Discovery share, with the transaction expected to close after the separation of Discovery Global in the third quarter of 2026, pending regulatory and shareholder approvals. This transformational acquisition would significantly expand production capacity, deepen the content library with franchises, including Harry Potter and DC Comics properties, and enhance theatrical distribution capabilities. The transaction faces regulatory scrutiny from the Department of Justice, which issued a 2nd information request in January 2026, though management expressed confidence in securing necessary approvals.
Valuation and Competitive Landscape Considerations
Netflix trades at a forward price-to-earnings ratio of 26.88 times, representing a significant premium to the Zacks Broadcast Radio and Television industry average of 24.51 times. NFLX carries a Value Score of C. This valuation multiple reflects investor optimism regarding the company’s growth trajectory and margin expansion potential, though it also leaves limited room for execution missteps.
NFLX’s P/E F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
The stock has declined 26.8% over the past six months, underperforming major streaming competitors, including Apple AAPL, Amazon AMZN and Disney DIS, the Zacks Consumer Discretionary sector and the S&P 500 index. The relative underperformance creates potential entry opportunities for patient investors, though Amazon continues expanding Prime Video content investments, Disney maintains powerful franchises and parks integration, and Apple leverages its ecosystem advantages to bundle services. Each competitor presents distinct challenges that Netflix must navigate while executing its ambitious growth strategy and integrating potentially transformative Warner Bros. assets.
NFLX’s 6-Month Performance
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Conclusion
Netflix’s solid fourth-quarter results and ambitious 2026 guidance demonstrate operational strength, yet the stock’s recent underperformance and premium valuation warrant caution. The Warner Bros. acquisition introduces both transformational opportunity and regulatory risk. Investors may benefit from waiting for clearer regulatory visibility or a more attractive valuation entry point before initiating positions. NFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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