The Netflix Dip Is A Gift For Long-Term Investors
Q4 Earnings Cause Shares To Reach A New 52-week Low
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Current Price: $85.70
Portfolio Purpose: Growth 📉
Over the past month, Netflix (NFLX) has been in the spotlight due to its pending acquisition of Warner Bros. Discovery (WBD). And this has sparked a bidding war with Paramount Skydance Corp. (PSKY).
Netflix recently amended its offer to an all-cash deal, increasing borrowing capacity to accelerate closure and sweeten terms for WBD shareholders.
While deal uncertainty has pressured the stock, I remain confident Netflix ultimately closes the acquisition. Even if it doesn’t, the underlying business remains healthy, profitable, and growing.
Following Q4 earnings, shares sold off sharply, reaching a new 52-week low near $80.
In my view, this move reflects valuation anxiety and regulatory overhang, not fundamentals — creating a compelling entry point. And let’s get into why.
Earnings Were Solid — Mr. Market Disagreed 🥴
Netflix’s Q4 report was fundamentally strong:
EPS: $0.56 (beat by $0.01)
Revenue: $12.05B (+18% YoY, $80M beat)
Despite this double beat, shares sold off as EPS declined sequentially and margins pulled back modestly from recent highs.
Regional strength remained broad-based:
U.S. & Canada: +18.1% to $5.34B
EMEA: +17.6% to $3.87B
Advertising revenue was a standout, reaching $1.5B (2.5× growth). Management guided to $3B in ad revenue by 2026, making it a key margin and cash-flow driver going forward.
Margins & Cash Flow Tell the Real Story 💵
Operating margins rose to 29.5%, down sequentially but still near cycle highs. Management expects margins to exceed 30% next quarter and reach 31.5% in 2026, aided by higher ad mix.
Key financial growth:
Subscribers: 325M (+8%)
Net Income: $2.42B (+29% YoY)
Operating Income: $2.96B (vs. $2.27B last year)
Free Cash Flow: $1.87B (up YoY despite QoQ dip)
This cash generation gives Netflix flexibility to reinvest, service debt, and absorb the WBD acquisition without jeopardizing long-term growth.
2026 Outlook: Still Double-Digit Growth ↗️
Management guided to 12%–14% revenue growth in 2026, implying ~$51.2B at midpoint. While this marks a modest slowdown from 2025, it’s still impressive for a company of Netflix’s scale.
I expect buybacks to pause due to the acquisition, but organic growth, advertising expansion, and content synergies should continue driving shareholder value.
Long-Term Upside vs. Risk ⚠️
If the deal closes, Netflix gains:
HBO Max franchises
Expanded content pipeline
Incremental subscriber growth
If the deal fails, shares may dip into the low $70s — but long-term fundamentals remain intact.
Competition from YouTube and others is real, particularly in advertising, but Netflix’s scale, pricing power, and diversified content strategy position it well.
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Bottom Line ✅
Netflix continues to execute:
Revenue +18%
Net income +29%
Ad revenue accelerating
Margins near record highs
The current sell-off reflects uncertainty, not deterioration. With compelling long-term growth and a clear path to monetization, I believe Netflix is a strong buy here.
Volatility is the price of admission — and right now, it seems to be offering an opportunity.
Does Netflix have a place in your portfolio? Let me know in the comments.
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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