The streaming giant beat first-quarter expectations on every measure, but Wall Street sold the stock on what comes next.
Netflix Inc (NASDAQ:NFLX, XETRA:NFC) did everything it was supposed to do in the first quarter and still got punished for it.
Revenue came in at $12.25 billion, up 16.2% on the same period last year and ahead of the $12.18 billion analysts had pencilled in.
Net income reached $5.28 billion, nearly double the year-ago figure, boosted by a $2.8 billion breakup fee received after Netflix walked away from its proposed acquisition of Warner Bros. Discovery assets in February.
None of it held the stock. Shares fell as much as 10% in after-hours trading on Thursday, wiping around $50 billion from the company's market value.
The guidance problem
The sell-off was driven by what comes next, not what just happened.
Netflix guided for second-quarter revenue of $12.6 billion, representing growth of 13.5% year on year. TD Cowen noted that the figure came in around 0.5% below both his own estimate and the broader consensus.
Operating income guidance for the second quarter landed around 5% short of consensus expectations.
JP Morgan, which reiterated its 'overweight' rating but trimmed its price target from $120 to $118, described the quarter as "more meat and potatoes than sizzle". But it said it would buy weakness in the shares.
JPM noted that full-year guidance for revenue growth of 12% to 14% and an operating margin of 31.5% was left unchanged, and that the cost picture should improve materially as the year progresses.
The shape of 2026 is the issue for markets. Content amortisation is front-loaded, with the company flagging that the second quarter will carry the highest year-on-year amortisation growth rate of the year.
JPM projects expense growth decelerates to around 7% in the second half, with operating income growth then accelerating above 30%.
Hastings steps down
Adding to the unsettled mood, Netflix announced that co-founder and executive chairman Reed Hastings will not stand for re-election when his term expires in June.
Hastings, who co-founded Netflix in 1997 and served as sole or co-CEO until January 2023, is stepping down to focus on philanthropy and personal pursuits.
On the earnings call, co-CEO Ted Sarandos addressed analyst questions about whether the departure was connected to the collapsed Warner Bros. Discovery deal.
He was direct: Hastings had championed the transaction, the board vote had been unanimous, and the two things were unrelated.
What is actually working
The underlying business looks solid, which is what makes Thursday's sell-off a story about valuation rather than fundamentals.
Netflix's ad-supported tier now accounts for more than 60% of new subscribers in markets where the option is available.
The company reiterated its target of $3 billion in advertising revenue for 2026, which would represent a doubling year on year. JPM projects advertising will grow to represent 10% or more of total revenue by 2027 or 2028.
Programmatic advertising is approaching half of all non-live ad inventory, and the advertiser base has grown to more than 4,000, up around 70% year on year in 2025.
Engagement quality, rather than hours, was the metric management emphasised. Netflix said its primary internal quality engagement measure hit an all-time high in the first quarter.
The World Baseball Classic became the most-watched programme in Netflix's history in Japan, driving the largest single-country contribution to member growth in the quarter.
Bridgerton Season 4 contributed to retention and word-of-mouth. Video podcasts are pulling in incremental viewing during daytime hours and on mobile.
Netflix also repurchased $1.3 billion of shares in the quarter and raised its full-year free cash flow guidance to $12.5 billion, up $1.5 billion, reflecting the after-tax value of the Warner Bros. breakup fee.
Reading the sell-off
A 10% after-hours decline on a quarter where profits nearly doubled is a signal about expectations, not about the company's health.
Netflix entered earnings having gained 15% in 2026 to date. At that level, the stock was priced for strong execution and no ambiguity. Soft second-quarter guidance provided the ambiguity, and the market responded accordingly.
The structural story remains intact. Netflix holds around 5% of global TV viewing hours and has penetrated less than 45% of its broadband household addressable market.
JP Morgan projects compound annual growth rates of 12% for constant-currency revenue, 21% for operating income, and 24% for earnings per share through to 2028.
TD Cowen maintained its 'buy' rating and $112 price target, noting that third-quarter results should begin to reflect the full benefit of the price increases Netflix rolled out in the United States in late March.
Thursday night was not a verdict on Netflix's business. It was a reminder that at premium multiples, almost good enough is never quite enough.