Shares of Netflix had been buying and selling at $108.03 on the shut and are rapidly down 8% on the discharge at $98.70.
The corporate beat on just about each Q1 line that issues so it wasn’t about quarterly metrics.
Income $12.25B vs. $12.18B consensus. EPS $1.23 vs. $0.76 — however the EPS beat is sort of fully the $2.8B Warner Bros. termination payment flowing by way of “curiosity and different earnings.” Strip that out and also you’re in-line to modestly forward. Working earnings $3.96B, margin 32.3% vs. 31.7% a 12 months in the past. Free money move $5.09B, additionally flattered by the $2.8B payment.
Clear underlying learn: income +16% y/y (+14% FX-neutral), working earnings +18%, margin growth. Administration says income was above forecast on higher-than-planned membership progress and favorable FX. Advert income reiterated at ~$3B for 2026, roughly 2x.
Zero complaints on the quarter itself.
Why the drop?
Q2 information. Income $12.57B vs. $12.63B consensus. EPS $0.78 vs. $0.84. That is the miss the tape is buying and selling on. Administration is telling you Q2 margin will probably be 32.6% vs. 34.1% a 12 months in the past — i.e. year-over-year margin compression in Q2 — as a result of content material amortization is front-half weighted this 12 months. They’ve flagged Q3 and This autumn because the margin restoration quarters to hit the 31.5% full-year goal.
Full-year information unchanged. $50.7B–$51.7B income, 31.5% working margin. That is precisely the lure we highlighted within the preview: A inventory buying and selling at these ranges desires a increase, not a reiteration. They reiterated. Bulls wished the US worth hike and the “larger than deliberate” Q1 subscription income to translate into an specific bump to the complete 12 months. It did not.
FCF raised, however for the unsuitable cause. 2026 FCF now ~$12.5B vs. $11B beforehand, and administration could be very upfront that it is the after-tax affect of the WBD break-up payment. That is a one-time money windfall, not working leverage. Buyside is not going to re-rate on that and if you happen to strip out the free cash it is a miss.
The Hastings headline
Founder Reed Hastings not standing for re-election to the board in June. I am unsure that is a foul factor for shares as he’d already left the CEO publish.
Hastings has been one of many extra politically seen tech founders — large Kamala Harris donor in 2024, vocal critic of the administration on a number of events. Him stepping again to “deal with philanthropy” is the cleanest attainable exit.
The market is not buying and selling this as a unfavorable — if something, eradicating political-target danger is a quiet optimistic for a shopper enterprise that should preserve worth hikes flowing by way of in an election cycle.
Day-to-day operations do not change. Sarandos and Peters have been working the corporate for some time now. Hastings hasn’t been CEO since 2023.
The opposite stuff value flagging
- Buybacks resumed. 13.5M shares for $1.3B in Q1, $6.8B left on the authorization. They paused throughout the WBD pursuit and at the moment are again out there. Ending money of $12.3B is unusually excessive, which implies the buyback tempo from right here can speed up so that might cushion the drop, although it is nonetheless not a lot on a $450 billion market cap.
- EMEA FX-neutral progress decelerated to 12% from 15% final quarter. Not a catastrophe, however that is the place the European price-hike litigation overhang Wedbush flagged in our preview.
- APAC progress 20% reported, 19% FX-neutral, and Japan was the one largest contributor to Q1 member progress — the World Baseball Basic delivered 31.4M viewers and their greatest sign-up day ever within the nation. That is the live-event ad-bait thesis really working.
- Advertisements plan now >60% of sign-ups in adverts international locations. Advertiser rely 4,000, +70% y/y. The $3B goal stays.
- Spain worth hike introduced at present. Buried within the letter. They don’t seem to be performed pushing worth.
- InterPositive (Ben Affleck’s AI firm) closed — reveals up as $585M in Q1 acquisitions on the money move assertion. Morgan Stanley’s bull case was partly constructed on AI flipping from danger to alternative; that is the tangible piece of that.
I are likely to assume that income quantity places a whole lot of issues into perspective as a result of everybody pays that $20/month. For example, if each single greenback on this planet spent on NFLX went to you as a substitute, it might take about 66 quarters — or 16.5 years, till you had been as wealthy as Elon Musk or the valuation of Anthropic within the personal market ($800B).
