Netflix closed 2025 with a familiar paradox: strong top-line growth and a swelling subscriber base, but a stock that’s drifting lower as investors wrestle with profit margins and an $83 billion bet on Warner Bros.
Shares sank to a fresh 52-week low after the company’s fourth-quarter update showed 325 million global paid members — up from about 302 million at the end of 2024 — yet left Wall Street bristling over guidance that implied only modest margin expansion next year. Management also confirmed it had converted the Warner Bros. deal to an all-cash offer, a move analysts say sharpens the short-term financial sting even as it signals commitment to a transformational acquisition.
What investors heard (and didn’t)
On the earnings call Netflix executives touted engagement gains — branded originals lifted view hours in the back half of 2025 — and pointed to the ad business as a growing pillar. Co-CEO Greg Peters called the ad unit “making good progress,” and the company disclosed 2025 ad revenue north of $1.5 billion, roughly 3% of full-year revenue, with a target to double that in 2026.
Still, the guidance on operating margins — management outlined a 31.5% margin target for 2026, only a hair above 2025’s level — disappointed many analysts. That combination of slower-than-expected margin improvement and the looming price-tag of Warner Bros. prompted a wave of price-target cuts and cautionary notes. Critics flagged two main risks: (1) higher content and integration costs tied to the acquisition, and (2) evolving viewer habits among younger audiences who increasingly fragment time across short-form social platforms and FAST channels.
Analysts from firms including Pivotal Research, Bernstein, BMO and Guggenheim trimmed forecasts and targets. Their messages varied in tone — some see the ad ramp and global pricing power as durable upside, others worry the WBD bid could sap near-term returns and keep the stock range-bound until the deal’s fate is clear.
Warner Bros.: strategic prize or expensive distraction?
Netflix’s bid for Warner Bros. is being framed internally as a way to secure a deeper film and TV studio footprint, theatrical distribution, and HBO content under a more flexible bundle. Management argues the combined company could experiment with subscription options and better monetize big franchises. But regulators and investors will scrutinize whether the price justifies the benefits — especially if the cost pushes leverage higher while margins tread water.
Several analysts expect the deal to face regulatory review and to require asset shuffling (distribution rights, for example) before closing. Even if the acquisition wins approval, many on the Street think it will leave an earnings overhang for months, if not quarters.
Ads and pricing: the real growth story — eventually
Advertising is the clearest measurable win so far. Netflix’s ad tier, launched in late 2022, is gradually contributing to revenue and narrowing the ARPU gap between ad-supported and ad-free tiers, management said. That matters: advertisers are keen to reach streaming audiences, and Netflix’s scale — hundreds of millions of accounts — is attractive to brands.
But the ad business has been slower to ramp than some expected. A number of analysts welcomed the ad disclosure as a helpful datapoint but warned not to extrapolate too quickly: the unit must scale its tech stack and targeting to command premium CPMs and meaningfully lift company-wide margins. If the ad business hits the company’s 2026 goal of ~$3 billion, it would offset part of the Warner-related cost burden and serve as a bulwark for growth.
Why engagement still matters
Netflix’s engagement metrics are mixed. Branded originals — Stranger Things, The Night Agent, and other tentpoles — drove a visible uplift in viewing hours late in the year, but non-branded licensed content saw declines. That pattern feeds the debate: can Netflix sustain double-digit revenue growth driven by price increases and ads if organic engagement softens, especially with Gen Z’s attention siphoned to platforms like TikTok and Instagram? Management has publicly signaled new rivals (they explicitly name platforms such as YouTube and Instagram) as part of its regulatory argument for the Warner deal.
If you follow the broader audio and on-demand ecosystem, Netflix’s move into additional content formats — including podcasts — is noteworthy. The company’s expansion into audio sits alongside industry updates such as improvements to how podcasts work on devices and apps; Apple’s recent podcasting changes are one relevant touchpoint for that space Apple Podcasts in iOS 26.2 adds auto-generated chapters and timed links.
Meanwhile, the ways people watch continue to diversify: consoles, streaming sticks, and cloud options are all part of the ecosystem Netflix must navigate. Devices that expand how subscribers access shows — for instance recent updates that let players stream console libraries on the go — underscore the importance of platform reach PlayStation Portal can now stream your PS5 library. And if you’re shopping hardware for a living-room setup, Netflix is obviously optimized for devices like an Apple TV.
There’s no neat ending here. Netflix’s fundamentals — subscriber growth, ad traction, global reach — remain impressive. But the market’s patience is being tested by margin guidance and the sheer size of the Warner gamble. Investors will likely trade in and out on developments: ad traction and price increases can buoy returns, while the deal process and content costs will keep volatility elevated until there’s more clarity.