Key Points
- Netflix delivered a strong Q1 2026, beating
expectations on revenue (USD 12.25B, +16% YoY) and operating income (+18% YoY),
with operating margin expanding to 32.3%. This was driven by subscriber growth,
pricing increases, and rising ad revenue.
- The post-earnings selloff of more than 10% was
driven by below-consensus Q2 guidance, a maintained full-year outlook, and
concerns over co-founder Reed Hastings stepping down from the Board.
- We view the guidance “miss” as largely a
function of timing and accounting dynamics rather than any deterioration in
fundamentals, while leadership transition risks appear limited given the
company’s established management.
- Netflix still has significant room to grow, with
only ~5% share of global TV viewing and less than 45% penetration of its addressable
Smart TV household market.
- Its long-term growth drivers remain intact,
underpinned by strong pricing power, deeper engagement through new content
formats and platform features, and a rapidly scaling advertising business as a
complementary revenue stream.
- The sell-off has created a more attractive entry point, with a target price of USD 150 implying ~63% upside.
Netflix (NASDAQ: NFLX) delivered a strong first quarter in 2026, beating expectations on both revenue and earnings. Yet, the stock fell more than 10% in the days that followed. The market reacted poorly to Q2 guidance that came in below consensus, a full-year outlook that was maintained rather than raised, and the announcement that co-founder Reed Hastings will be stepping down from the Board in June.
In our view, the selloff is unwarranted. While these concerns are not entirely unfounded, we believe they are largely short-term in nature and do not detract from the strength of Netflix’s long-term growth story.
Q1 2026 Earnings Highlights
Netflix’s Q1 2026 results were solid across most key metrics. Revenue reached USD 12.25 billion, up 16% year over year and ahead of the consensus estimate of USD 12.17 billion. This was driven primarily by membership growth, higher pricing, and increased ad revenue.
Operating income rose 18% year over year to USD 3.96 billion, slightly above consensus expectations of USD 3.94 billion, while operating margins expanded to 32.3% from 31.7% in Q1 2025.
Diluted EPS came in at USD 1.23, significantly ahead of the consensus estimate of USD 0.77. However, this outperformance was largely driven by a USD 2.8 billion termination fee related to the Warner Bros. acquisition.
Table 1: Netflix Q1 earnings
|
1Q26 |
1Q25 |
Beat/Miss vs Estimate |
YoY change |
|
|
Revenue |
12,250 |
10,543 |
0.6% |
16.2% |
|
Operating Income |
3,957 |
3,347 |
0.5% |
18.2% |
|
Net Income |
5,283 |
2,890 |
60.7% |
82.8% |
|
Diluted EPS |
1.23 |
0.66 |
61.3% |
86.1% |
|
Source: Netflix
1Q26 Shareholder Letter, Bloomberg Finance L.P. |
||||
Looking ahead, Netflix maintained its full-year 2026
guidance, projecting revenue of USD 50.7–51.7 billion (12–14% growth) and an
operating margin of 31.5%.
For Q2 2026, management guided for revenue of USD 12.57 billion and EPS of USD
0.78 — below consensus estimates of USD 12.64 billion and USD 0.84,
respectively. This guidance shortfall, combined with the decision not to raise
the full-year outlook despite a strong Q1, were the primary catalysts for the
post-earnings selloff.
Why the selloff is unwarranted
Guidance miss does not reflect deteriorating fundamentals
Investors had expected Netflix to raise its full-year revenue and operating margin guidance given the US subscription price hikes implemented in late March and the removal of Warner Bros.-related M&A costs.
However, the reality is more nuanced.
Management clarified that its initial 2026 guidance had already factored in the planned pricing adjustments, even though the increases had not yet been publicly announced. As such, there was limited scope for upside revisions purely from pricing.
On costs, the previously guided USD 275 million in M&A-related expenses was not solely attributable to the Warner Bros. transaction. It also included costs associated with the InterPositive acquisition, which again had not yet been disclosed. Furthermore, while some Warner Bros.-related costs will no longer materialise, others that were originally expected to be incurred in 2027 have been brought forward into 2026.
Looking specifically at the second quarter, management indicated that content amortisation will be front-loaded in 2026 due to the timing of content releases. This means that Q2 will see the highest year-on-year growth in amortisation expenses, which in turn weighs on margins. Consequently, Netflix guided for a Q2 operating margin of 32.6%, compared to 34.1% in the same period last year.
The slightly softer-than-expected Q2 revenue guidance also appears to reflect a degree of conservatism. Management is likely factoring in potential near-term fluctuations in subscriber behaviour following price increases, as well as the lag effect from billing cycles before higher prices are fully reflected in reported revenue.
In essence, the perceived “miss” in guidance is more a function of timing, accounting dynamics, and prior investor expectations, rather than any underlying weakness in the business.
Reed Hastings’ exit marks the end of a transition that has been running for years
The second key concern weighing on sentiment is the announcement that co-founder Reed Hastings will not stand for re-election to the Board when his term expires in June 2026. While his departure naturally draws attention given his pivotal role in building Netflix, the concern appears overstated upon closer examination.
As co-CEOs, Ted Sarandos and Greg Peters have been leading the day-to-day business together since Hastings stepped down as CEO in January 2023. Both executives are deeply embedded in Netflix’s culture and strategy. Sarandos, who joined the company in 2000, has been instrumental in building one of the world’s most powerful content engines. Peters, meanwhile, has played a key role since 2008 in shaping Netflix’s product and technology capabilities, driving innovation across the platform.
Against this backdrop, Hastings’ departure from the Board should be viewed as the formal completion of a leadership transition that has already been in place for several years, rather than the beginning of a new phase of uncertainty.
Long runway for growth even at its current scale
One of the most consistent underappreciated facts about Netflix is the significant headroom for future growth, even at its current scale.
The company estimates that it accounts for approximately only 5% of global TV viewing share. In terms of household penetration, it has reached less than 45% of its addressable market of Smart TV households. These figures underscore the fact that Netflix is far from saturated, with ample room to expand both its user base and its share of consumer attention.
International markets, in particular, continue to drive growth. The Asia-Pacific region delivered 20% year-on-year revenue growth in the first quarter, making it the fastest-growing segment. Strong performance in markets such as Japan, India, Korea, and Southeast Asia reflects the success of Netflix’s localisation strategy. The company’s ability to produce and distribute content that resonates with regional audiences has been a key differentiator.
Table 2: Revenue growth by region
|
1Q26 YoY % change |
|
|
UCAN |
14% |
|
EMEA |
17% |
|
LATAM |
19% |
|
APAC |
20% |
|
Source: Netflix 1Q26 Shareholder Letter. Data as of 17 April 2026. |
|
Netflix’s ability to monetise its members remains strong
Sustained pricing power backed by compelling user value
In late March 2026, Netflix raised its US standard ad-free plan from USD 17.99 to USD 19.99 a month, and its ad-supported tier from USD 7.99 to USD 8.99. This has raised concerns about potential churn. However, we believe Netflix’s pricing power is stronger than the market gives it credit for.
Historically, price increases have led to only temporary spikes in churn, which then normalise within a few months. For example, following the January 2025 price increases across US plans, monthly churn rose from 1.8% in December to 2.5%, according to Antenna estimates. However, this moderated to 2.0% by May and further declined to 1.7% by February 2026. Notably, Netflix continues to maintain the lowest cancellation rate in the industry.
It is also important to view these price increases within the broader industry context. Netflix is not alone in raising prices—competitors such as Disney, Warner Bros. Discovery (HBO Max), Comcast (Peacock), Apple (Apple TV+), and Amazon have all implemented price hikes over the past year. More recently, Amazon increased the price of its ad-free add-on, “Prime Video Ultra,” from USD 2.99 to USD 4.99. This industry-wide shift reduces the risk of substitution and reinforces Netflix’s relative value proposition.
Figure 1: Netflix boasts the lowest churn rate among all Subscription Video on Demand (SVOD)
Source: Antenna. Average monthly churn is calculated as the number of cancellations in a month divided by the total number of subscriptions in the previous month.
We expect Netflix’s low churn advantage to persist, supported by its strong value proposition. In the US, subscribers continue to pay less per hour of viewing on Netflix than on any other major SVOD platform.
Strategically, Netflix is also evolving beyond a traditional streaming service into a broader entertainment platform spanning multiple formats. In addition to films and TV series, the company is expanding into video podcasts, gaming, and live events. Podcasts, in particular, are gaining traction during daytime hours and on mobile—periods that typically see lower engagement for long-form video. This suggests usage is incremental, filling gaps rather than displacing time spent on films and TV. In effect, podcasts expand total time spent on Netflix by capturing moments that might otherwise go to competing platforms.
Gaming remains in its early stages but represents a promising lever to deepen engagement and improve retention, particularly through interaction with Netflix-owned intellectual property such as Squid Game. Recent initiatives, including Netflix Playground—a standalone gaming app for children featuring titles tied to franchises such as Peppa Pig and Dr. Seuss—further strengthen ecosystem engagement and enhance subscription stickiness among families.
Live events are also emerging as a meaningful driver of acquisition. The World Baseball Classic, for example, delivered record viewership in Japan and drove Netflix’s largest single-day subscriber additions in the country, with Japan leading global member growth in the first quarter.
To further enhance engagement and content discovery, Netflix is set to launch a vertical video feed on mobile by end-April 2026. This short-form, TikTok-style interface is designed to align with evolving consumption habits and reduce friction in content discovery, particularly among younger audiences.
Taken together, these initiatives are driving engagement to record levels, with Netflix’s internal core engagement metric reaching an all-time high in Q1 2026.
Overall, we believe Netflix retains meaningful runway for further pricing expansion as it continues to enhance the value of its subscription. By broadening its content ecosystem and deepening engagement across formats, the company is reinforcing its pricing power and supporting long-term churn resilience.
The advertising business represents a rapidly growing second revenue engine
Netflix’s advertising business is also scaling rapidly. The company remains on course to generate approximately USD 3 billion in advertising revenue in 2026, representing a doubling from the prior year. The ad-supported tier continues to see strong traction, accounting for more than 60% of new sign-ups in markets where it is available.
Advertiser adoption has also expanded meaningfully, with the total advertiser base growing over 70% year-on-year in 2025 to exceed 4,000. Operationally, the shift to Netflix’s proprietary ad tech stack has improved ease of access for advertisers by streamlining the buying process. The company has also expanded integration with multiple demand-side platforms (DSPs), broadening the range of purchasing channels.
Taken together, these developments position the platform to capture a larger share of global advertising budgets as its ad capabilities continue to scale and mature. Over time, advertising is likely to complement subscription revenue as a key driver of growth, further enhancing the platform’s monetisation potential.
The selloff has made valuations even more compelling
To conclude, we believe that the sell-off in Netflix after earnings was overdone. It largely reflected investors’ misassumptions and elevated expectations going into earnings, rather than a sign of deterioration in business fundamentals. Netflix continues to execute well across all key areas, from content and engagement to monetisation and innovation. Its global scale, strong brand, and diversified growth drivers position it to capture a larger share of the evolving entertainment landscape.
The pullback has also made valuations more compelling. Applying a target P/E multiple of 33x to our 2028 earnings forecast yields a fair value of USD 150, implying approximately 62% upside from current levels.
By focusing on near-term fluctuations, the market risks
overlooking the structural drivers of Netflix’s long-term growth. For patient
investors, the recent weakness presents an opportunity to gain exposure to a
high-quality platform that remains at the forefront of global entertainment.
Table 3: Projections for Netflix’s earnings
|
Netflix |
2025 |
2026E |
2027E |
2028E |
|
Earnings Per Share (EPS) |
2.5 |
3.2 |
3.9 |
4.6 |
|
Earnings Growth YoY |
29.7% |
26.8% |
20.5% |
17.5% |
|
PE Ratio (X) |
36.9 |
28.7 |
23.8 |
20.2 |
|
Target Price (based on a fair PE of 33X) |
150 |
|||
|
Upside Potential |
63.0% |
|||
|
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 28 April 2026 |
||||
Figure 2: Share prices are driven by earnings growth in the long run
Declaration:
This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.
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