Netflix once again showed strong business and in the first quarter of 2026 it reported a profit of US$5,280 millionwith a rise of 83% year-on-year, while the EPS came to US$1.23, well above the US$0.76 that the consensus expected. They added to that income by US$12,250 million, equivalent to a 16% growth compared to the same period last year, slightly above what the market expected.
There was also improvement in profitability, with an operating margin of 32.3%, in line with expectations, and a free cash flow of US$5,094 million, 67% above consensus. Furthermore, the company resumed share buybacks and acquired 13.5 million papers per US$1.3 billion during the quarter, with a remainder of US$6.8 billion to continue running that program.
A solid balance sheet
One of the keys to better reading the quarter is to separate operational strength from extraordinary factors. The report of Allaria points out that part of the improvement in profits was driven by the cancellation fee received from the abandoned transaction with Warner Bros. That income also impacted cash and helped explain why cash flow generated from operations rose to US$5.3 billion.
About this, Damián Vlassich, Team Leader of Investment Strategies at IOL, it was warned that “the market appears to be punishing a more conservative growth guidance and the non-recurring nature of its earnings“.
The observation brings a central discussion to ground since Netflix did surprise the rise in EPSbut IOL clarifies that “this surprise was not of operational origin” and adds: “The accounting profit included the commission for terminating the deal with Warner Bros. (US$2.8 billion), recognized as an extraordinary financial income. When extracting this item, the recurring EPS was practically in line with what the market expected.”
Where was the problem?
For the second quarter of 2026, Netflix projected sales for US$12,574 millionbelow the US$12,630 million who was waiting for consensus. In operating result, estimated US$4,105 million versus US$4.33 billion anticipated by the market. He Expected diluted EPS was from US$0.78 also below of the $0.84 which the consensus estimated.
The annual guidance didn’t help either as the streaming giant kept its 2026 projections unchanged, with revenue growth from among 12% and 14% year-on-year, operating margin 31.5% and an advertising business that the company says should double revenue this year. The problem is that the market expected an improvement in the guidance after the good start and the price increases and that didn’t happen.
IOL puts the focus exactly there when Vlassich maintains that “the main focus of concern for investors is the growth trajectory” and highlights that the projections for the rest of the year “accentuated the bearish bias.” In particular, two signs stand out:
- A guide for the second quarter with growth of only 13.5% year-on-year
- An annual guide whose midpoint confirms a more moderate expansion stage.
In parallel, Allaria also makes a fundamental warning and points out that Netflix need to accelerate advertising monetizationmaintain discipline in content spending and comply with its 2026 guidance to justify higher multiples or even the consensus target. At the same time, he states that the 10% negative reaction The stock looks somewhat exaggerated, but clarifies that for now the guide does not seem to justify further increases from the current valuation.
Valuation remains demanding
That is another central point of the discussion since Netflix is not a broken story or a company in trouble. The consensus of recommendations contained in Allaria’s report remains openly favorable: 80% “buy”, 20% “hold” and 0% “sell”, with a target price of US$114.87 compared to a price of US$97.41, which implies a potential upside of 17.9%.
Now, the fact that the consensus is still inclined to buy does not mean that the paper has become cheap. Allaria points out that Netflix is trading at a forward P/E of 33x, below its historical average of 38.6x, but still above its closest peers in the internet universe -streaming- or growth-oriented media.
IOL hardens that conclusion a bit more when Vlassich argues that “Netflix delivered an operationally solid quarter, but with a narrative that the market interpreted as the beginning of a maturity phase“and completes with a phrase that well summarizes the stock market shock after the balance sheet: “For a company trading at a P/E close to 40x, the combination of a non-recurring earnings surprise and sequentially decelerating revenue guidance triggered a repricing process.”
What is the market looking at now?
From here, the action is tied to three variables. The first is if the company manages to demonstrate that the advertising business can become a relevant engine and not just in a promise. The report highlights that Netflix completed the implementation of Netflix Ads Suite in all its advertising markets and that it expects to double advertising revenue in 2026.
The second variable is the dynamics of the business in USA and Canada given that, in that region, the revenue grew 14% year-on-year, below the 18% from the first quarter of 2025. Given that UCAN is the most mature market and one of the largest contributors by ARPU, any slowdown there weighs especially heavily on the market evaluation.
The third is the content managementwhere Allaria highlights that the streaming giant has been below its content spending guidance for the last two years and that the relationship between spending on content and income decreased markedly. That helps margins and cash, but also opens a discussion about how much that discipline can be sustained at no cost in the long term in the power of the catalog.
So buy, sell or hold?
The correct answer, taking the available documentation at face value, is not to “maintain” as a formal consensus recommendation. The consensus, at least on the part of Allaria analysts, remains a buy and that is supported by the chart in their report: 80% Buy, 20% Hold and 0% Sell.
Netflix presented a solid quarter, but part of the earnings surprise was extraordinary and the guide -guidance- for the rest of the year did not improve and left a more conservative flavor.
and the valuation, although below its historical average, still demanding versus comparable.
Therefore, more than a role to be discarded, Netflix appears today as an action that needs to prove again that its growth is not entering a more persistent slowdown phase. IOL summarizes it with another useful definition for short-term monitoring: “although the long-term thesis remains intact, the $95-100 area now appears as a more reasonable support level.” And he adds that “the sustained recovery of paper will depend on the second quarter confirming that growth has found a floor and is not the beginning of a more pronounced fall in the expansion curve.”
For all this, the conclusion, then, is that the City is not recommending selling Netflixblind enthusiasm was not enabled either.
The consensus still sees upside potentialbut the market demands stronger validation of growth before rewarding paper again.
