Photographer: Ethan Swope/Bloomberg
(Bloomberg) — While the chatter surrounding Netflix Inc. these days is all about its hefty bid for Warner Bros. Discovery Inc., Wall Street will get an opportunity to focus on something else, at least for a little while, when the streaming giant reports earnings after the bell.
Investors have been concerned about Netflix’s slowing flow of subscribers and the sustainability of its growth. The issue sparked the worst selloff in the stock in more than three years after the company’s previous earnings report on Oct. 21. The shares are down 28% since then.
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At the time, Netflix was seen as a possible suitor for Warner Bros. Now that the deal is on the table at $82.7 billion, some investors are on edge and all the risks are amplified. On Tuesday, Netflix sweetened its bid with an all-cash agreement to buy Warner Bros.’s studio and streaming business; it previously agreed to a cash and stock deal. Netflix rose as much as 1.9% in Tuesday morning trading, while Warner fell 0.9%.
“There have been lingering concerns about the sustainability of growth levers into 2026,” with the Warner Bros. deal weighing on shares on top of that, said Joel Kulina, managing director for TMT trading at Wedbush Securities. He added that while investors might get clarity with the earnings report, deal drama is likely to “drag out for way too long.” Plus, he said that it’s “hard to imagine someone wants to buy this versus AI winner stories right now into a decelerating revenue trajectory.”
Others, however, see the selloff as an opportunity. “I’m positive whether the deal goes through or not,” said Eric Clark, chief investment officer at Accuvest Global Advisors, who sees the drawdown as overblown. “I don’t see a scenario where money doesn’t go back into Netflix shares.”
The Los Gatos, California-based company is expected to report fourth-quarter earnings of 55 cents per share, a 28% increase from a year ago, and revenue of $12 billion, up 17% from the fourth quarter of 2024. But analysts project a slowing of Netflix’s revenue growth in each of the next three quarters before it starts to rise again in 2027, according to data compiled by Bloomberg.
“Who are we kidding, there is no chance that this print distracts investors from the ongoing circus,” Daniel Kurnos, an analyst at Benchmark Co., wrote in a note to clients on Jan. 13. “But it could be a reminder of the soundness of Netflix’s fundamentals and the organic levers the company has going into what should be a banner year for connected television.”
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Kurnos, who has a hold rating on Netflix shares, anticipates the company will deliver a solid outlook for revenue and operating income in 2026, which could “offer a brief respite from the relentless focus on the current M&A love triangle that seems to have no near-term end in sight and is bound to get messier before it gets better.” He also anticipates international growth will accelerate and points to an advertising partnership with Amazon.com Inc. as reasons for optimism.
“Netflix likely posted a solid fourth quarter given its blockbuster content lineup,” Bloomberg Intelligence analyst Geetha Ranganathan wrote in a research note last week, pointing to the finale of science-fiction horror series , the Jake Paul versus Anthony Joshua boxing match and the NFL games over Christmas. However, a revenue miss “would exacerbate structural growth concerns especially in light of the Warner transaction,” she added.
With so much uncertainty ahead, investors will be most closely attuned to the company’s guidance, including for this year’s operating margin, according to TD Cowen analyst John Blackledge. He expects that paid net subscribers rose by 14.2 million in the quarter, down from roughly 19 million a year ago but above the consensus estimate of around 11 million, according to data compiled by Bloomberg.
Meanwhile, the Warner Bros. deal saga continues. Last week, Netflix was said to have been working on revised terms, including an all-cash offer. The changes were designed to expedite the sale amid a push by rival bidder Paramount Skydance Corp.
“Netflix is probably poised to be a winner regardless of how the M&A process plays out,” Benchmark’s Kurnos wrote. He’s bullish on the combination, which would create a “dominant force in the marketplace, especially from a pricing and engagement perspective.” But if Netflix doesn’t get Warner Bros. it “would seem to mollify investors who do not care for the deal given media’s poor transaction track record.”
For some investors, however, the bid for Warner Bros. is just too expensive and risky for a company that historically hasn’t grown through acquisitions.
“I’ve completely lost interest” in the earnings report, said Vikram Rai, a portfolio manager and macro trader at First New York. Netflix had been one of his favorite stocks, but deal machinations turned him into a bear and he sold his shares weeks ago. “If there’s a pop, I’m going to short it.”
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Earnings Due Tuesday
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–With assistance from Subrat Patnaik, David Watkins, Cristin Flanagan and William Selway.
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