Netflix fires on all cylinders as profits surge and Warner Bros deal looms

CALIFORNIA: Netflix ended 2025 with a muscular show of financial strength, pairing double-digit revenue growth with swelling margins, surging advertising income and a sharpened focus on cash, even as competition across entertainment intensifies and the company prepares for its biggest corporate gamble yet.

“In 2025, we met or exceeded all of our financial objectives,” the company told shareholders, setting the tone for a year that saw Netflix morph further from a subscriber-hungry disruptor into a disciplined, profit-led media heavyweight.

Revenue for the year hit $45.2bn, up 16 per cent year on year, or 17 per cent on an F/X-neutral basis, while operating margin expanded to 29.5 per cent, a three-point jump. Advertising revenue rose more than 2.5 times to over $1.5bn, marking a decisive shift in Netflix’s revenue mix.

The December quarter capped the year in style. Revenue climbed 18 per cent year on year, paid memberships crossed the 325m mark and operating income jumped 30 per cent. “Engagement remains healthy,” the company said, noting that view hours in the second half of 2025 rose 2 per cent year on year, driven by a 9 per cent surge in viewing of branded originals.

Pricing power and ads do the heavy lifting
Netflix said Q4 revenue growth was “driven primarily by membership growth, higher pricing, and increased ad revenue”, adding that revenue landed 1 per cent above guidance despite unfavourable currency movements, helped by stronger-than-forecast membership growth and ad sales.

Operating income for the quarter reached $3.0bn, up 30 per cent year on year, while operating margin expanded to 25 per cent, “both slightly ahead of our forecast due primarily to the revenue upside”. Diluted earnings per share rose 31 per cent year on year to $0.56.

Net income, the company noted, included around $60m of costs linked to interest expenses from bridge financing related to the Warner Bros transaction, costs that had not been included in guidance.

“Our primary financial metrics are revenue for growth and operating margin for profitability,” Netflix said. “Our goal is to sustain healthy revenue growth, expand operating profit and margin, and deliver growing free cash flow.”

2026: higher margins, more ads, bigger bets
Looking ahead, Netflix forecast 2026 revenue of $50.7bn–$51.7bn, implying growth of 12–14 per cent year on year, or 11–13 per cent on an F/X-neutral basis. Advertising revenue is expected to “roughly double” compared with 2025.

The company is targeting a 2026 operating margin of 31.5 per cent, even after absorbing roughly $275m of acquisition-related expenses. While content amortisation is expected to rise about 10 per cent, Netflix said it still sees “plenty of room to increase our margins” and intends to grow operating margin each year, even if the pace of expansion varies.

Engagement holds as original power viewing
With more than 325m paid memberships, Netflix said it is now serving an audience “approaching one billion people globally”. In the second half of 2025, members watched 96bn hours of content, up 2 per cent year on year, with branded originals leading the charge.

The company credited strong performances from returning series including Stranger Things, Emily in Paris, Selling Sunset and Record of Ragnarok, alongside new shows such as The Beast in Me, Rulers of Fortune and Last Samurai Standing. Documentaries, stand-up specials and films also delivered heavyweight viewing, led by Guillermo del Toro’s Frankenstein and Wake Up Dead Man: A Knives Out Mystery.

That growth was partially offset by a decline in non-branded viewing, reflecting a lower volume of licensed content following the production shutdowns caused by the writers’ strike in 2023–24.

“Our goal is to continue to grow engagement,” Netflix said, stressing that it will do so “first and foremost by improving our core series and film offering”.

A broader slate and deeper fandom
Netflix outlined an expansive 2026 slate spanning returning franchises such as Bridgerton, ONE PIECE, The Diplomat and Lupin, new scripted series including Pride & Prejudice, East of Eden and Operation Safed Sagar, and a broad lineup of films featuring Greta Gerwig’s Narnia, Peaky Blinders: The Immortal Man and Enola Holmes 3.

The company also plans to expand licensed content, including a new US film deal with Universal, additional Paramount titles and an expanded global pay-one agreement with Sony Pictures Entertainment.

Not all hours are equal, Netflix said, stressing that “fandom is a powerful engine for our business”. Deep audience connections drive retention, word of mouth and brand loyalty, as seen with Stranger Things, Bridgerton and KPop Demon Hunters. The company pointed to record traffic at Tudum and strong footfall at its new Netflix Houses as evidence of that pull.

Live, games and product innovation
Live programming, while still a small slice of total viewing, delivers “outsized value”, Netflix said, citing major events such as Anthony Joshua’s knockout of Jake Paul and NFL Christmas Day games. In 2026, Netflix will stream all 47 games of the World Baseball Classic live in Japan, its first major local live event outside the US.

On gaming, Netflix has begun rolling out cloud-delivered TV-based party games and plans to expand the lineup in 2026, including a reimagined FIFA football title.

Product innovation remains central. Netflix said it will continue to enhance discovery, interactivity and personalisation, while expanding its use of AI to support advertisers, creators and localisation.

Cash piles up as deal-making accelerates
Cash flow remains robust. Operating cash flow reached $10.1bn in 2025, while free cash flow hit $9.5bn, ahead of guidance. For 2026, Netflix expects free cash flow of roughly $11bn.

During Q4, the company repurchased 18.9m shares for $2.1bn but said it will pause buybacks to accumulate cash ahead of the Warner Bros acquisition. Gross debt stood at $14.5bn at year-end, with $9.0bn in cash.

In December, Netflix announced plans to acquire Warner Bros in an all-cash deal valued at $27.75 per share. The company said the revised structure “expedites the timeline” and provides “greater certainty of value”.

“We believe our proposed purchase of Warner Bros will allow us to accelerate our business strategy,” Netflix said, pointing to the strength of Warner Bros’ library and the addition of HBO Max as key strategic wins.

Competing for attention, not just screens
Netflix reiterated that it competes not just with other streamers, but with “all activities people engage with during their leisure time”, from gaming and social media to live events. Despite gains, its share of TV time in major markets remains below 10 per cent.

“We relish competition and work to earn more of consumers’ attention,” the company said.

Longer-term returns underline why investors are still listening. Since its 2002 listing, Netflix stock has delivered cumulative returns of more than 87,000 per cent, far outpacing the S&P 500 and Nasdaq. Over the past decade alone, annualised returns stand at 23 per cent, compared with 15 per cent for the S&P 500, even after a more modest 5 per cent rise over the past year.

Management insists that short-term volatility remains secondary to long-term execution. “We continue to manage our business for the long term and under the belief that pleasing our members will lead to strong value creation for our fellow shareholders,” the company said, thanking investors “for their trust and for coming along with us on our journey to build one of the world’s leading entertainment companies”.

That message will face scrutiny later today when co-chief executives Greg Peters and Ted Sarandos appear alongside cfo Spencer Neumann and finance head Spencer Wang in a live earnings interview, fielding questions on advertising momentum, margin discipline and the scale of the Warner Bros bet.

For now, Netflix is signalling confidence. Growth is slowing, but profitability is accelerating. Competition is fierce, but attention is still flowing its way. And with cash piling up, margins widening and the industry’s most audacious acquisition in motion, the streamer is no longer playing defence.

It is rewriting the rules — again.