Netflix (NASDAQ:NFLX) shares dropped almost 10% in premarket trading on Friday after the company issued second-quarter guidance that fell short of Wall Street expectations.
The streaming group projected Q2 2026 earnings per share of $0.78, below the consensus forecast of $0.84. Revenue is expected to reach $12.57 billion, also missing estimates of $12.64 billion.
In a letter to shareholders released Thursday, Netflix said Chairman Reed Hastings will not seek re-election at the company’s annual meeting in June and will step down from the business he co-founded nearly three decades ago, as he plans to focus on philanthropy and other interests.
“Growth in content amortization will be first-half weighted due to the timing of title launches. 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,” the company said.
Despite the weaker outlook, Netflix delivered strong first-quarter results that exceeded analyst expectations, supported by solid subscription revenue.
The company reported Q1 earnings per share of $1.23, beating forecasts by $0.44 compared with estimates of $0.79. Revenue came in at $12.25 billion, up 16.2% year-on-year and ahead of the $12.18 billion consensus.
“Revenue in Q1 grew 16% year over year (+14% on a foreign exchange (F/X) neutral basis), driven primarily by membership growth, higher pricing, and increased ad revenue,” Netflix said in its shareholder letter.
Netflix maintained its full-year 2026 outlook, projecting revenue in the range of $50.7 billion to $51.7 billion and an operating margin of 31.5%.
“With the stock up 40% in the last 2 months (vs. COMP +7%), investors are likely disappointed by the Q2 rev guidance miss and no raise on the FY26 rev/ OM outlook,” said James Heaney of Jefferies.
“In our view, the primary issue was overly optimistic expectations for U.S. pricing benefit and margin expectation, rather than any fundamental deterioration,” he added.
The update comes after Netflix failed in its attempt to acquire Warner Bros. Discovery for $72 billion, as it works to reinforce its position as the leading global streaming platform. While the company previously described a Warner Bros deal as a “nice to have, not need to have” opportunity, it did not specify how it plans to use the $2.8 billion termination fee received.
Netflix said it is broadening its content offering with video podcasts and live programming, including events such as the World Baseball Classic in Japan, to boost user engagement. It also plans to use technology to enhance the viewing experience and improve monetization, with advertising revenue expected to reach $3 billion in 2026—roughly double the previous year.
Following discussions with management, analysts at Raymond James noted that “60% of users in ad markets are now coming in through the ad plan.”
“While advertising is not yet a major margin driver, Netflix sees substantial runway through better ad tech, greater use of first-party data, and new GenAI-enabled ad products,” the firm added.