Netflix shares dropped 9% in after-hours trading on Thursday following the streaming leader’s first-quarter earnings announcement and a significant governance update.
The company exceeded Wall Street forecasts for revenue, posting $12.25 billion for the first quarter, surpassing the $12.18 billion projected by analysts from LSEG and showing a 16% increase from the $10.54 billion reported for the same quarter last year.
Thursday was the company’s first earnings report since it retracted its proposed acquisition of Warner Bros. Discovery’s streaming and film assets in February.
Netflix noted a net income of $5.28 billion, which translates to $1.23 per share, nearly double the $2.89 billion or 66 cents per share reported in the same quarter last year. The company attributed this to a higher-than-expected operating income and the $2.8 billion termination fee received after the WBD deal collapsed.
Reported earnings per share were not directly comparable to the analyst prediction of 76 cents due to the effects of the termination fee.
Nonetheless, Netflix retained its prior full-year revenue forecast of between $50.7 billion and $51.7 billion.
The company anticipates a 13% increase in revenue for the second quarter and reiterated its earlier caution that content expenditure will be predominantly in the first half of the year due to timing of title launches. Netflix also indicated that it expects the second quarter to present the highest year-over-year growth rate in content amortization for 2026 before declining in the latter half of the year.
Despite relinquishing its planned acquisition for WBD’s assets, that potential deal will still impact Netflix’s financials this year. Chief Financial Officer Spencer Neumann remarked on Thursday that although some planned expenses related to the deal will not “fully materialize,” others initially set for 2027 will be adjusted to occur in 2026. He noted that the company remains “in the ballpark … of the total that we were projecting for total M&A-related costs in the year.”
On Thursday, Netflix also disclosed that Reed Hastings, the co-founder of Netflix and current chairman, will step down from the board in June when his term ends.
Hastings resigned from his role as CEO in 2023. Greg Peters, who held the position of chief operating officer, assumed the co-CEO role alongside Ted Sarandos.
“Netflix has transformed my life in numerous ways, and my most cherished memory was January 2016, when we allowed virtually everyone on the planet to access our service,” Hastings stated in the company’s shareholder letter on Thursday. Hastings will now dedicate his efforts to philanthropy and other interests, as reflected in the letter.
On Thursday, an analyst posed a question regarding whether Hastings’ departure was connected to the proposed WBD deal.
Sarandos dismissed that notion, asserting that Hastings was “a strong supporter of that deal. He advocated for it with the board. The board was unanimous.”
Examining internal strategies
Netflix on Thursday reaffirmed that it remains on course to achieve $3 billion in advertising revenue by 2026, signifying a doubling year-over-year as this new revenue stream demonstrates growth.
The company initially launched its lower-priced, ad-supported tier in 2022 and has since emphasized this path for revenue enhancement — even as it raises subscription costs and tightens regulations on password sharing to boost subscriber numbers.
In January, Netflix announced it had achieved 325 million paid subscribers worldwide. Netflix no longer discloses quarterly updates on its subscriber count.
It stated on Thursday that “slightly higher-than-anticipated subscription revenue” fueled an 18% increase in operating income in the first quarter.
Additionally, last month Netflix announced an increase in prices across all its streaming plans once more.
“Our recent price adjustments have been well received, reflecting the strong value we offer our members,” the company shared in the shareholder letter on Thursday.
Co-CEO Peters mentioned during Thursday’s call that the price hikes were always part of the company’s annual strategy. While Peters noted that the implementation of these price changes is ongoing, initial results are consistent with prior observations following price changes — such as members canceling subscriptions or opting for cheaper plans.
“We aim to provide increased value to our members … wisely invest the revenue we generate, and, at times, when we’ve enhanced value, we request our members to contribute more so we can further invest in delivering them even greater entertainment value,” Peters expressed.
The company noted on Thursday that its foray into video podcasts, along with the airing of the World Baseball Classic, significantly contributed to its “primary internal quality engagement metric” achieving an all-time high in the first quarter.
Live sports have become integral to Netflix’s platform, and on Thursday co-CEO Sarandos mentioned that the company is currently negotiating with the NFL to “broaden the partnership.” Although Netflix does not have a standard NFL package, it has streamed NFL games on Christmas Day for several years.
Correction: This story has been updated after LSEG amended its assessment of Netflix’s earnings per share. Reported EPS is not comparable to analyst estimates due to the influence of the WBD termination fee.
