Our Game Plan for Netflix After Earnings

The stock market has catapulted higher on Friday following word that Iran declared the Strait of Hormuz is “completely open” for the remaining period of the ceasefire, and that is pushing oil prices even lower.

West Texas Intermediate Crude (WTIC) is approaching early March levels, and the thinking that we are that much closer to a potential peace deal is leading treasury yields lower, lifting some interest rate-sensitive sectors. That makes the Portfolio’s position in Netflix (NFLX) shares a bit of an outlier on Friday, but as we discussed in our opening comments, softer-than-expected guidance for the current quarter and management only reiterating 2026 guidance are weighing on the shares.

Let’s turn and dig a little deeper into the company’s results, guidance, earnings call comments and why we remain bullish on NFLX shares.

For Q1 2026, Netflix delivered EPS of $1.23, $0.47 better than the consensus forecast, on revenue that climbed more than 16% year over year to $12.25 billion, besting the $12.18 billion market forecast. The bottom-line upside surprise was driven by a few factors, including the company’s operating margin rising year over year and quarter over quarter to 32.3%. Below the operating line, the $2.8 billion termination fee related to the Warner Bros. Discovery (WBD) transaction was recognized in the “interest and other income” line, and we estimate that added about $0.42 to the company’s Q1 2026 bottom line. Excluding that figure, Netflix still delivered a bottom-line beat for the quarter.

That $2.8 billion payment as well as cash flow from operations, left Netflix with about $12.3 billion in cash and short-term investments. Following the cancellation of Netflix’s bid for Warner Bros., it resumed repurchase activity, buying back 13.5 million shares for $1.3 billion in Q1 2026. Exiting the quarter, Netflix had $6.8 billion remaining under its current authorization, and the fact that it didn’t increase that authorization given the level of cash it has is another item putting some pressure on the shares besides its guidance.

That guidance for the current quarter leaves something to be desired in that it falls short of what the market was looking for. EPS was guided to $0.78 compared to the $0.84 consensus, with revenue around $12.574 billion, also less than the $12.64 billion consensus. When we look at that guidance compared to the company’s Q1 2026 results, revenue is higher, but the bottom line is lower by a few pennies. That flags margins and Netflix management shared that it expects to have the highest-level content amortization growth in the quarter, but that it should settle down in 2H 2026.

As we think about that, we have to weigh it against some other comments made by the management team:

"The upside for Q1 2026 revenue was due to slightly higher-than-planned subscription revenue.

"Our recent price changes have gone well, reflecting the strong value we provide members and our advertising revenue remains on track to reach $3B in 2026, up 2x year-over-year."

The announcement for that “recent price change” was in late March, and the new pricing added roughly $1 to $2 per month to all plans in the U.S. That brings the Standard plan to $19.99 per month and Premium to $26.99 per month for new subscribers, and those prices will be phased in for existing ones across their billing cycles.

This suggests that, more likely than not, once again, Netflix has delivered guidance that skews conservative, not only for the current quarter but by reiterating its 2026 guidance that was issued before that domestic March price announcement.

As we think about Netflix, the allure of its streaming service is very much in line with the time-tested view that content is king. What we mean by that is Netflix not only has to continue to deliver content that people want to consume, but to grow further, it has to expand its content offering to win new subscribers and advertising dollars. That’s one reason why we pay close attention to the company’s content slate as well as expansion into games, live events, sporting events, podcasts and others. We also keep our ears open for what is said about Netflix’s internal quality engagement metric hit, which hit an all-time high in Q1 2026.

The company is also expanding what it calls “local for local” programming as part of its live event offering. As that happens, we should see the company’s advertiser base expand further from the more than 4,000 advertisers it had exiting 2025. As its membership grows and viewing hours do the same, we should see further gains in high-margin advertising revenues.

Our Plan for NFLX Shares

Putting it all together and viewed against the backdrop of Friday's market move that has pushed the S&P 500 and Nasdaq Composite further into an overbought condition, we are going to patiently wait for an opportunity to pick up the shares in a more balanced risk-to-reward market environment. If we see a bout of market softness near-term, NFLX shares have solid support near $92.

As others jockey their price targets closer to our $115 one, for now, we’ll maintain it at that level. Should we see third-party data, like Nielsen’s The Gauge, point to meaningful share gains by Netflix in the coming months, we’ll look to revisit our target price.

Reminder in Netflix’s Post-Earnings Performance

We discussed this in Friday morning’s opening comments, but with the market pushing higher and deeper into overbought territory, it bears repeating:

For the market and for individual stocks, to push sustainably higher from current levels, companies will need to deliver beat-and-raise quarterly results that best Wall Street’s whisper numbers. While the market is a forward-looking animal, the comments from companies reporting this week remind us that Q1 2026 weather, tariffs, energy prices and the other impacts from the U.S.-Iran conflict are headwinds to bottom-line results.

Recognizing this, we’ll continue to own the Portfolio’s market hedging positions, and we’re examining a few individual stock positions that have moved deep into overbought territory.

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At the time of publication, TheStreet Pro Portfolio was long NFLX.