The Netflix Earnings Report Nobody Wanted to See

The stock dropped 6.8% after hours on Tuesday like someone found out their dream job just got eliminated. Which, in a way, is what happened.

Netflix beat. Full stop. $0.56 EPS against the $0.55 estimate. Revenue of $42.5 billion for 2025, up 16% year-over-year. The ads business—which didn't even exist as a material line item three years ago—generated $1.5 billion in revenue, a 150% jump, and Netflix is projecting it'll nearly double again to $3 billion in 2026. These are the kinds of numbers that should trigger champagne at the top of the office tower, not a stock price collapse.

But here's the thing nobody's saying out loud: Netflix beat with everything except the one number that matters now.

The market wanted to see margin expansion. The story Netflix has been selling since the pivot to ads is simple, almost beautiful in its simplicity. Lower the churn problem with a cheap tier. Introduce ads. Watch subscribers stay because they've got a free option. Watch margins expand because ads are pure profit. Watch the stock soar on the spreadsheet of inevitability.

Instead, the company showed up with a beat and a shoulder shrug. Yes, the ads business is working. Yes, subscriber growth is solid. But the math—the fundamental arithmetic—isn't compressing as aggressively as the market priced in. The margin expansion isn't there yet. It's coming, probably, but it's not there.

And that word—"yet"—is now a four-letter word on Wall Street.

The AI Problem That Nobody Named

Here's what made the Netflix story break: in the same earnings report where the company emphasized its organic growth strategy and its skepticism about major acquisitions, Greg Peters got asked about AI. And Netflix's answer was basically: "Yeah, it's a tool. We're not worried about it replacing our creative people. Actually, we're excited about it."

Listen to how that landed. In an earnings call for a company that just reported strong numbers, the words "AI," "excited," and "tool" somehow created the narrative of obsolescence. Because that's what we're all feeling right now, isn't it? The executives are excited about the technology, which means the technology is coming, which means the thing that currently exists is about to get cheaper.

Netflix isn't worried about AI replacing writers and producers. But the market is. The market is absolutely terrified of it. And every time a CEO says they're "building out" their AI capabilities or "exploring opportunities," the subtext for investors becomes: the margin expansion you're counting on in 2027 might get destroyed by cheaper automation in 2028.

It's not a rational fear, necessarily. It's a pattern recognition machine firing on all cylinders.

The Greenland Bounce That Blew Up in Their Face

This is where it gets dark.

The market sold off nearly 2.1% on Tuesday because Trump was ramping up pressure on Greenland and Denmark over tariffs. It was pure chaos—uncertainty crystallized. Wednesday morning, though, the narrative shifted. Trump said he wouldn't impose the Europe tariffs he'd threatened. There was a "framework of a deal" on Greenland with NATO. Markets surged. The S&P 500 bounced 1.2%, the largest gain since November.

Relief + rally = normal market behavior.

But Netflix reported the same day. Earnings at 4:30 p.m. on Wednesday, after the rally. The stock tanked in after-hours.

So the sequence here is almost poetic in its cruelty: the entire market got a relief trade on geopolitical de-escalation. Investors decided things were fine. Trump was bluffing. Tariffs were off. Big Tech was safe. Buy the dip. And then, exactly when that confidence was highest, a mega-cap that had been a bellwether of streaming profitability revealed that its growth story isn't translating to margin accretion the way the models demanded.

The rally ate itself.

What the Numbers Actually Say

Let's be precise: Netflix grew revenue 16% year-over-year while operating in an environment where interest rates are elevated, where consumer sentiment is mixed, where the competition for streaming attention is absolutely cannibalistic. That's a real achievement.

Advertising jumped 150%. The ad tier now has 190 million monthly active viewers. Netflix is taking on a new data infrastructure project to sell better targeting and measurement to advertisers. They're launching interactive ad formats in Q2. The monetization story is real.

But streaming is a mature business now. Revenue is no longer the thesis. Margins are. Profit is. Cash conversion. And Netflix's full-year 2025 numbers show that while revenue exploded, the company is still fighting to show the operating leverage that would justify the capital intensity of their business model.

The stock had priced in the narrative. The narrative didn't show up.

The Intel Moment

While we're at it, Intel jumped over 11% on Wednesday, hitting its highest level since January 2022. New server chips. Government backing. Nvidia's backing. Shortage dynamics. The AI infrastructure arms race is real and Intel is a beneficiary.

Netflix is reporting margins that don't compress. Intel is reporting tailwinds that won't stop. Same market. Opposite outcomes. One is on everybody's "smart" list for 2026. One just got demoted.

The Deeper Unease

This week in earnings is going to hurt. The market is in a state where growth + strong guidance isn't enough. You need to prove that growth is converting to cash at a rate that justifies the risk premium people paid in 2024 and 2025. You need to show that the macro isn't going to blow up your margins. You need to convince people that your AI narrative is about productivity gains, not about disruption that's about to hollow out your business model.

Netflix did none of that. Netflix reported a beat and a belief that everything is fine. The market heard it and decided that wasn't enough anymore.

It's the moment when hope starts to crack into anxiety.

The thing is, Netflix is probably going to be fine. The streaming business is probably going to be fine. The ads play is going to work. But "probably fine" doesn't move stocks when the market is pricing in "best case scenario."

And that gap—the gap between what's good and what's supposed to be miraculous—is where fortunes evaporate.

Tuesday's rally was the last gasp of the easy money. Wednesday's earnings call was the beginning of the reckoning. By Thursday morning, the market had to figure out which one was real.

The answer, almost always, is the thing that makes you uncomfortable.