Key Points
Netflix delivered revenue and profits that exceeded expectations, though seasonality cut into its Q2 guidance.
The big story was the departure of co-founder, former CEO, and board chair Reed Hastings.
It's been an interesting time to be a Netflix(NASDAQ: NFLX) investor. Since late last year, the drama surrounding the streaming provider has been worthy of one of the company's hit shows. Netflix launched a bid to acquire the studio and streaming assets of Warner Bros. Discovery, only to be outbid by Paramount Skydance. The stock price moves have been equally dramatic. After plunging 39% over four months, Netflix came roaring back, soaring 42% from its trough (as of this writing).
When Netflix reported its financial results after the market close on Thursday, it surpassed every benchmark in its forecast -- but it wasn't the company's results that drove the stock lower.
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Robust results across the board
In the first quarter, Netflix generated revenue of $12.25 billion, an increase of 16%, resulting in earnings per share (EPS) of $1.23, which jumped 86%. This easily surpassed management's forecast of $12.16 billion in revenue and $0.76 in EPS. The results were driven by higher-than-forecast membership growth, higher pricing, and increased ad revenue.
Netflix also benefited from the $2.8 billion termination fee it received from Warner Bros. after ceding the acquisition to Paramount. The company also noted that, with the deal in the rearview mirror, it resumed its share repurchase plan, buying back 13.5 million shares for $1.3 billion (about $96.30 per share), with $6.8 billion remaining on the existing repurchase authorization.
Netflix said it remains on track to double its advertising revenue to $3 billion, up from $1.5 billion in 2025. The ad-supported tier represented 60% of all Q1 signups in the countries where it offers ads. The company also noted that advertising clients surged 70% year over year to more than 4,000.
Management is guiding for Q2 revenue of $12.57 billion and EPS of $0.78, slightly below Wall Street's expectations. Here's the thing: The company noted that "We expect Q2 to have the highest year-over-year content amortization growth rate in 2026, before decelerating to mid-to-high single digit growth in the second half of the year." Spending more for content now and less later isn't a big deal. Nothing to see here, folks. Move along.
A bittersweet development
Not all the news was financial. Netflix co-founder, former CEO, and board chair Reed Hastings has decided to step away from the company that he helped make into a household name. He said he would not stand for reelection to the board when his current term expires in June.
While that might not seem like good news, this quote from Hastings helps put the news into perspective (emphasis mine): "A special thanks to [co-CEOs] Greg [Peters] and Ted [Sarandos], whose commitment to Netflix's greatness is so strong that I can now focus on new things." One sign of a good leader is that they train their people to run the organization in their absence. Hasting believes he has done just that.
Looking back, Hastings' contribution can't be overstated, as he was instrumental in creating a company culture that is arguably unmatched. Perhaps as importantly, Netflix's consistent performance has made it one of the best-performing stocks of the past 30 years, generating gains of 99,841%. In fact, over the past 20 years, the stock has generated a compound annual growth rate (CAGR) of 32%, according to Macrotrends. Those contributions will be Hastings' enduring legacy.
A consistent performer
Netflix stock has recovered somewhat from the drubbing it took in recent months and is currently selling for 34 times forward earnings. I would argue that's a fair price for a company with such a sterling track record. The stock is down roughly 9% in after-hours trading (as of this writing), giving astute investors the opportunity to pick up shares at a discount.
For my money, Netflix stock is a buy.
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Danny Vena, CPA has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
