Reed Hastings leaves Netflix, which says it “really built our M&A muscle” during failed deal with Warner Bros. Discovery

There’s just no winning with Netflix shareholders. After it reported 2025’s Q4 earnings in January, stock prices plummeted to a 52-week record low because Netflix projected thinner profit margins due to investment in new content–including an expected closure on its deal to acquire Warner Bros. Discovery.

But, as you know, that deal ended up falling through thanks to Paramount swooping in with a hostile bid. (Hollywood is not happy about this.)

So that must mean things were looking up when the streamer reported Q1 2026 earnings, right?

Wrong.

Despite beating Wall Street analysts’ revenue projections by nearly 50 cents a share, Netflix saw its stock drop 10% in after-hours trading.

Why?

Two potential reasons. First, capital expenditure. The Warner Bros. deal failing to close is sure to make some shareholders happy, but even though Netflix is saving a boatload of money there, it’s already committed to spending nearly $20 billion this year on other new programming, focusing on areas like live sports and video podcasts.

That $20 bil will push Netflix’s content costs up 10% from where they were in 2025, and means less profit for shareholders in the short-term, obviously with the hope that more content will draw more subscribers and result in more money long-term.

The second reason is Reed Hastings. The Netflix co-founder, former longtime CEO, and current chairman used the Q1 call as a chance to announce he’s leaving the company.

Hastings, who’s 65 and a board member at AI company Anthropic, said he’ll exit Netflix’s board this summer to “focus on new things.”

“My real contribution at Netflix wasn’t a single decision; it was a focus on member joy, building a culture that others could inherit and improve, and building a company that could be both beloved by members and wildly successful for generations to come,” he said in a letter to shareholders.

Hastings leaving after so many years could be a shake for some shareholders, but he did step down as CEO in 2023, and co-CEOs Ted Sarandos and Greg Peters have led Netflix since.

Speaking of Sarandos, this was the time for him to give investors an inside look at what happened with the Warner Bros. Discovery deal.

“We’ve learned so much about deal execution, about early integration,” he said during a post-earnings video call. “We’re really proud of the teams that did all that work. We were proud to win the bid. We are confident in our ability to get to the finish line with regulators for the approvals that we needed. But mostly, we really built our M&A muscle. And the most important benefit of this entire exercise, though, was that we tested our investment discipline. And when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion, and ego aside, and walk away.”

Netflix also defended its increase in content spending by pointing to the World Baseball Classic, which drew 31.4 million viewers in Japan and became Netflix’s #1 most-viewed title in the country so far. Netflix said the Classic also prompted its biggest single day of subscription signups in Japan, and that Japan beat every other country for contribution to subscription growth in Q1.

The streamer doesn’t announce exact subscriber numbers anymore, but said it came in above analyst projections thanks to “slightly higher-than-planned subscription revenue.”

We might see an uptick in subscriber money for Q2 as well, since Netflix just hiked prices again. But that triggers the age-old question: Will the people who accept and pay for yet another price hike outweigh losses from the ones who cancel their subscriptions?