If you're scratching your head wondering why Netflix stock dropped 4% after beating Wall Street estimates, welcome to one of the market's most frustrating lessons: beating earnings doesn't guarantee your stock goes up.
Netflix delivered fourth-quarter results that crushed expectations. The streaming giant hit 325 million subscribers and beat revenue estimates. On paper, that sounds fantastic. But the stock got hammered in after-hours trading, and here's why Wall Street is actually disappointed.
The Problem: Guidance Matters More Than Results
Netflix forecast earnings of 76 cents per share for the current quarter. Wall Street was expecting 82 cents. That 6-cent miss in future earnings? That's what tanked the stock.
The company also announced it's increasing spending on films and TV shows by 10% in 2026. More spending means lower profit margins, at least in the short term. Add in the costs of acquiring Warner Bros. Discovery in an all-cash deal, and suddenly those stellar Q4 numbers look less impressive when you're thinking about what comes next.
This is the reality of earnings season that nobody tells retail investors: the past quarter matters less than what management says about the next one. Netflix could have tripled subscribers and it still wouldn't matter if guidance disappointed.
So What Does This Mean for Your Money?
If you own Netflix, don't panic. The fundamentals are still strong: - 325 million subscribers and growing - Revenue is up - They're buying one of the richest film and TV libraries in existence - Ad sales are expected to double to $3 billion in 2026 - Price increases are coming
The 4% drop is Wall Street recalibrating expectations based on higher costs. If you're a long-term investor, this is noise. If you're a short-term trader trying to play earnings, this is exactly why that's so risky.
The Takeaway
This is your reminder that "beating earnings" is only half the equation. Guidance is the other half, and sometimes it's the more important half. Netflix's business is fine. Their stock just got repriced based on what the next few quarters look like, not what last quarter looked like.
If they can't explain it simply, they're probably hiding something. In this case, Wall Street's explanation is actually pretty simple: great results, but higher costs ahead means lower profit margins. That's it. No conspiracy, just math.
