Netflix is set to report earnings after the close of trading on Tuesday, with investors closely watching the streaming giant's performance. The fourth quarter is expected to show strength from popular content like Stranger Things and Squid Games, but this may not fully address concerns over the company's proposed $72 billion acquisition of Warner Bros. Discovery.
Since announcing its intent to buy Warner Bros. on December 5, Netflix shares have dropped 15%, while the S&P 500 has gained 1.5%. The deal marks Netflix's first major acquisition, raising questions about how its growth-focused culture will integrate with Warner Bros.'s larger, slower operations. Additionally, Netflix would take on significant debt to complete the purchase.
Eric Lynch of Suncoast Equity Management expressed skepticism in an interview on Yahoo Finance's Opening Bid. "So I don't like the deal," Lynch said. "I much prefer Netflix licensing unbelievable content like K-Pop Demon Hunters and using their vast distribution platform to monetize that. So they've done a fantastic job moving from negative free cash flow to free cash flow post pandemic. It's a great business model. I hate to see them baggage themselves with all this debt and this extra content that they probably just don't need."
There are further uncertainties, including potential regulatory challenges from the Trump administration, as Oracle's Larry Ellison supports a rival bid for Warner Bros. by his son David Ellison and Paramount. Jefferies analyst James Heaney warned, "We worry that FY26 revenue guidance coming below the Street’s +13% year over year estimate could impact confidence in the organic growth story amid heightened scrutiny post-Warner Brothers. Secondarily, we believe investors will need to see at least Q4 revenue growth of 16% constant currency and FY26 operating margin of 32-33% to build confidence in path to $4.00 plus FY27 standalone earnings per share."
Netflix's earnings estimates for 2026 have remained unchanged over the past 90 days, according to Yahoo Finance data, reflecting cautious market sentiment. The company's shares have declined 30% in the last six months, with most losses occurring since the Warner Bros. bid was announced.