Netflix (NFLX) disappointed investors by maintaining its margin outlook even though its cost base apparently would have benefited from its decision to walk away from a deal to acquire Warner Bros. Discovery (WBD), MoffettNathanson said in a report on Friday.
The streaming giant late Thursday posted first-quarter revenue above Wall Street's estimates. It maintained the full-year revenue guidance at $50.7 billion to $51.7 billion and an operating margin outlook at 31.5%.
The FactSet-polled consensus is for $51.33 billion in 2026 sales.
Netflix in February abandoned its plan to acquire Warner Bros., handing it over to Paramount Skydance (PSKY). Last quarter, the company pointed to $275 million in M&A expenses this year, which most saw as fully attributable to the then-pending Warner Bros. deal, MoffettNathanson Senior Research Analyst Robert Fishman wrote.
However, after incorporating the acquisition of AI filmmaking technology company InterPositive and the pull forward of Warner Bros. deal costs, total M&A expenses remained largely unchanged, Fishman said. Netflix Chief Financial Officer Spencer Neumann made similar remarks on an earnings call Thursday.
Netflix acquired InterPositive in March.
Some on Wall Street, including UBS Securities, were pricing in an upgrade to the revenue outlook due to earlier-than-expected price increases. But the unchanged margin guidance came as a "bigger surprise" than Netflix reiterating its revenue guidance, Fishman said.
The stock plunged nearly 10% in Friday trade.
The company announced pricing changes for all its US plans in March, including a new $8.99 monthly subscription for the ad-supported standard tier.
MoffettNathanson said Netflix's long-term trajectory remains intact.
"Sure, the absence of a raise to 2026 guidance likely caught some ahead of their skis on near-term margin expectations; yet, the M&A costs in the 2026 expense base only create an easier comp for next year," Fishman wrote.
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