Netflix beat Q4 on revenue, EPS, subs, and cash flow. Nothing in the quarter itself was broken. But markets don’t trade the past quarter, they trade the next few.

Once you read the shareholder letter and guidance closely, the selloff starts to make sense. This wasn’t a rejection of the business. It was a repricing of certainty.

The Quarter Best Wasn’t The Kind Investors Pay Up For

The Q4 beat was real, but modest. Revenue came in about 1% above guidance, and EPS beat by a penny. Management was clear about where it came from..a mix of slightly better membership growth and stronger ad sales.

That’s fine but it’s also incremental, not transformative. There was no sudden acceleration in engagement (viewing hours were only up 2% YoY in the back half of 2025), and no signal that growth has reentered a new gear. The business is working, but it’s behaving like a mature platform.

When expectations are high, “fine” doesn’t rerate the stock.

Guidance Is Where Confidence Softened

This is the real reason the stock moved.

For 2026, Netflix guided revenue to $50.7–$51.7B, which technically brackets consensus but the low end came in softer than what many investors were leaning toward. That immediately raises the question..is growth slowing a bit faster than hoped?

Q1 guidance reinforced that concern. EPS was guided to $0.76 versus expectations closer to $0.80, and while the operating margin outlook is still strong, it didn’t clear the quietly elevated bar the market had set.

Nothing here screams trouble. But it does say 2026 starts a little slower, with margin expansion back loaded into the second half. That’s enough for investors to step back.

The Quality Of Cash Flow Mattered More Than The Headline Number

Free cash flow looked strong, but management flagged that 2025 benefited from timing..notably a $700M Brazilian tax deposit that slipped into 2026. That’s not a red flag, but it is something buy side investors adjust for mentally.

At the same time, Q4 earnings already included about $60M of interest expense tied to the Warner related bridge financing. That’s important because it shows deal mechanics are already creeping into the P&L before the acquisition even closes.

When your EPS beat is small, those kinds of details loom larger.

The Warner Deal Has Become The Dominant Variable

This is the biggest overhang, and it has nothing to do with Q4 execution.

Netflix is now guiding 2026 margins inclusive of $275M in acquisition related costs, pausing buybacks to conserve cash, and carrying $42B+ in bridge commitments tied to an all cash structure. Even if the deal ultimately works strategically, it introduces uncertainty..financing risk, integration risk, regulatory risk, and a longer period where capital returns are on hold.

For many investors, that changes the stock’s profile from a clean compounder to something closer to a wait and see story for the next year.

Positioning Did The Rest

Options markets were already pricing a big post earnings move. With guidance slightly soft, margins more back end loaded, and deal risk still unresolved, the market chose the downside.

My View

This wasn’t a judgment that Netflix is doing poorly. It was a recognition that the easy part of the story is over for now.

The quarter beat. The business is healthy. Ads are growing. But 2026 comes with more execution risk, more balance sheet complexity, and less visibility. In that setup, investors didn’t want to pay up so they sold the certainty premium. This was a classic beat the quarter, sell the path forward.