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Exclusive Story
Why Netflix Tanked Despite Big EPS Beat, Outlook AheadAuthor: Leo Miller. First Published: 4/17/2026. 
Key Points
- Netflix stock took a huge hit after its latest earnings report, even as EPS rose by over 80%
- A leftover from its failed WBD deal created a one-time earnings uplift
- Meanwhile, a key leader departed, and Netflix extended its live sports success internationally
- Special Report: Elon Musk already made me a “wealthy man”
Entertainment giant Netflix (NASDAQ: NFLX) just released one of its more anticipated earnings reports in some time. The firm’s latest report is its first since Paramount Skydance (PSKY) prevailed in the bid to acquire Warner Bros. Discovery (NASDAQ: WBD). To Netflix’s dismay, the market did not react kindly to the results. However, understanding why requires looking beyond the firm’s headline numbers. Considering Netflix’s long-term growth potential but underwhelming near-term guidance, the stock’s risk-reward profile looks relatively balanced. Netflix’s Huge EPS Beat Doesn’t Tell the Full StoryIn its Q4 fiscal 2025 (FY2025) report, Netflix posted revenue of $12.25 billion, up roughly 16% year-over-year (YOY). (Note that Netflix’s fiscal year is about one quarter ahead of the calendar year.) That was a slight beat versus expectations of $12.17 billion.
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Netflix delivered an even larger bottom-line surprise. Diluted earnings per share rose to $1.23, an 86% YOY increase and well above the $0.76 analysts expected. But this figure was boosted by a one-time item. When the Warner Bros. Discovery deal fell through, Paramount paid Netflix a $2.8 billion termination fee. That payout materially lifted Netflix’s net income and EPS. Stripping out this nonrecurring benefit, EPS would have missed expectations. Investors had already priced in the termination fee, which likely contributed to the stock’s nearly 10% drop in after-hours trading. Another drag on sentiment was Netflix’s guidance for the next quarter. The company forecast revenue of $12.57 billion, or 13.5% YOY growth, slightly below estimates of $12.64 billion. Netflix also said operating margin would decline about 150 basis points YOY to 32.6%, although that would be a 30-basis-point improvement versus Q4 FY2025. Netflix kept its full-year guidance range at $50.7 billion to $51.7 billion (a $51.2 billion midpoint), which was just under consensus of $51.37 billion. Hastings' Departure Causes JittersInvestors were also unsettled by Reed Hastings' decision not to seek re-election to the company’s Board of Directors. Hastings co-founded Netflix in 1997, served as CEO for 25 years, and is currently the company’s board chairman. He will remain chairman through June before stepping back to focus on philanthropy and other pursuits. That change matters for several reasons. On the earnings call, one analyst asked whether the pursuit of WBD influenced Hastings' decision. Hastings has long favored a “build over buy” approach, emphasizing organic growth over large acquisitions. If the WBD pursuit had prompted his departure, it could have signaled misalignment among Netflix’s leadership. Co-CEO Ted Sarandos strongly pushed back, saying, “Reed was a big champion for that deal,” adding that the board unanimously supported it and that it had “absolutely nothing to do” with Hastings' decision. Still, the timing is notable: months after chasing one of the largest potential media mergers in history, Netflix’s long-time leader opts to step away from the board. Hastings' departure marks the end of an era and raises questions about the future composition and leadership of Netflix’s board. Live Sports and Ads: Critical Levers for Netflix’s Future GrowthSustained growth is key to NFLX stock’s long-term upside, and live sports remain a major lever. During the quarter, Netflix’s broadcast of the World Baseball Classic (WBC) was a standout: it became Netflix’s most-watched program ever in Japan and produced the largest single-day sign-ups in the country, with Japan driving Netflix’s total Q1 membership growth. That success builds on the massive audiences Netflix drew for NFL games and the Mike Tyson–Jake Paul boxing match. The WBC was the company’s first large live event outside the United States and provides a playbook Netflix can replicate in other markets to boost membership. Netflix’s ad business is also progressing. The company expects to double ad sales to $3 billion by 2026 and reported its advertiser base grew 70% YOY to about 4,000 companies. As the advertiser pool expands, Netflix should improve ad targeting and increase revenue per ad as marketers derive more value from the platform. |
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