A record-breaking quarterly profit wasn’t enough to satisfy Wall Street. Netflix shares plunged nearly 10% after the streaming giant’s first-quarter results for 2026, a stark punishment that highlights the market’s fixation on future guidance over past performance. The sell-off came despite revenue climbing 16% year-over-year to $12.25 billion, slightly ahead of expectations, and net profit nearly doubling to $5.28 billion, a figure boosted by a one-time $2.8 billion payment from Paramount Skydance.
The core issue was the outlook. For the second quarter, Netflix projected revenue of $12.57 billion and earnings per share of $0.78, missing analyst consensus estimates of $12.64 billion and $0.84, respectively. The company also expects its operating margin to dip to 32.6%, down from 34.1% in the prior-year period. Management attributed this compression to the timing of content releases, with a heavier slate of new titles launching in the first half of the year pressuring costs. The company is operating with a content budget approaching $20 billion for the year.
This guidance miss has cleaved analyst opinion. Bullish firms see a buying opportunity in the pullback. Morgan Stanley reiterated its Overweight rating and $115 price target, arguing the forecast reflects a timing lag for recent U.S. price increases rather than a fundamental demand issue. JPMorgan echoed this stance, maintaining its Overweight rating and $118 target, while Needham set a $120 target, highlighting Netflix’s success in reducing churn and developing new engagement formats like vertical videos and kids’ games.
Yet a cautious camp warns of valuation and competitive threats. Pivotal Research analyst Jeffrey Wlodarczak maintained a Hold rating with a $96 target, positing that short-form entertainment from TikTok and YouTube is now disrupting the streaming market in the same way streaming once disrupted linear TV. Wolfe Research trimmed its price target from $110 to $107, citing concerns over slowing revenue and margin momentum despite keeping an Outperform rating. Barclays also adopted a neutral stance, cutting its target to $110.
Should investors sell immediately? Or is it worth buying Netflix?
Amid the guidance controversy, Netflix’s advertising business continues to show robust growth. Over 60% of new sign-ups in ad-supported markets are choosing the lower-priced tier, and the advertiser count has surged 70% year-over-year to surpass 4,000. The company reaffirmed its 2026 goal of generating $3 billion in ad revenue, which would represent a doubling from the previous year.
The full-year outlook remains unchanged, with revenue growth projected between 12% and 14% and an EBIT margin target of 31.5%. In a positive revision, Netflix raised its free cash flow forecast for the year to $12.5 billion, up from a prior estimate of $11 billion.
With the stock ending the week near $97, investors are now looking ahead. The upcoming quarterly reports from Disney and Paramount in early May may clarify whether Netflix’s second-quarter softness is an isolated timing issue or a broader industry trend. All eyes will then turn to Netflix’s own Q2 report on July 16th, where subscriber trends for the ad-supported plan and any potential update on share repurchases will be key focal points.
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