Netflix shares fell to a 52-week record low after a fourth-quarter earnings call revealed it’s expecting thinner profit margins in 2026 while it invests in content to compete with YouTube and Instagram.
The streamer said it’ll increase spending on programming by 10% this year, bringing it to nearly $20 billion over the course of 2026. Focus areas include live sports and video podcasts, both of which will lock it into further head-to-heads with YouTube.
That spending is on top of the Warner Bros. Discovery acquisition, which has shareholders worried about potential overpayment. Netflix’s $83 billion acquisition will see it take charge of assets like Warner Bros.’ Hollywood film biz, premium TV brand HBO, and (current, soon to be former) streaming competitors Max and Paramount+.
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The acquisition being top of mind for shareholders isn’t surprising, considering Netflix abruptly switched its bid for the entertainment giant to an all-cash deal just before the earnings call, competing with Paramount Skydance‘s own $82.7 billion cash offer. Per Barron’s, paying $83 billion in cash means Netflix will be ponying up 25 times the $3.3 billion it expects Warner Bros. assets to generate for it this year.
The deal as a whole overshadowed Netflix’s Q4 earnings, which came in slightly above analyst projections: $12.05 billion vs an estimated $11.96 billion. It also reported reaching 325 million paid global subscribers, bringing it up from 302 million in Q4 2024, and said K-Pop Demon Hunters is by far the most-watched content it’s ever produced.
None of that was bad, but investors aren’t thinking about the now; they’re thinking about the future.
As for why Netflix is splashing big cash on Warner Bros., co-CEO Ted Sarandos, as he often does, cited YouTube.
“TV is not what we grew up on. TV is now just about everything,” he said on the earnings call. “The Oscars and the NFL are on YouTube. Networks are simulcasting the Super Bowl on linear TV and streaming. Amazon owns MGM, Apple is competing for Emmys and Oscars, and Instagram is coming next.”
He didn’t stop there: “YouTube is not just UGC and cat videos anymore. YouTube has full-length films, new episodes of scripted and unscripted TV shows. They have NFL football games. They have the Oscars. The BBC is going to be producing original content for YouTube soon. They are TV,” he said. “So we all compete with them in every dimension, for talent, for ad dollars, for subscription dollars, and for all forms of content.”
That’s a big admission from someone who’s often tried to draw a line between YouTube content and Netflix content, in a way that paints the former as inferior. But Netflix has increasingly used YouTube as a free talent incubator. Its latest pickup is Alan Chikin Chow, who it’s hoping will spawn the next Demon Hunters.
Laurent Yoon, an analyst at Bernstein, told The Hollywood Reporter what he’s reading between the lines of Netflix’s 2026 projection. The streamer is projecting an operating margin of 31.5%, below the expected 32.5%. That may seem like a small difference, but investors are getting squirrelly because Netflix is simultaneously projecting a “solid 12-14 percent revenue growth,” Yoon said–meaning all that revenue is going to be poured into programming without much immediate bump in returns.
Yoon said the 12-14% increase probably points to a subscription price increase (who’s shocked) and that Netflix expects advertising revenue to double to $3 billion this year.
“Near-term sentiment and volatility are likely to persist, driven by softer-than-expected margin guidance and the WBD deal overhang,” he said. However, “this setup also creates meaningful upside as the pursuit of WBD becomes more certain,” he added.
Basically, investors aren’t convinced this play is going to pay off for Netflix, but it could, if the Warner Bros. Discovery acquisition makes it through the regulatory wringer and subscriptions/ad revenue continue to rise.
