Netflix’s fourth-quarter earnings confirmed the strength of the company's business model, despite the caution shown by markets following the earnings release. Revenue rose 18% YoY to reach $12.1 billion, beating expectations by around $80 million, while earnings per share came in at $0.56 slightly above estimates. 

Operating margin reached a healthy 25%, an increase of two percentage points compared to last year reflecting the company's ability to improve operating efficiency even in a competitive environment. With paid memberships reaching 325 million globally, a new record high, Netflix continues to cement its position as the world’s largest streaming platform.

One of the most notable strengths in Netflix's results is its ability to generate cash as operating cash flow reached $10.1 billion with a margin of 22% while free cash flow amounted to $9.5 billion, equivalent to nearly 21% of revenue. This level of liquidity gives the company significant flexibility, whether in investing in content, managing the balance sheet or executing future strategic moves. Looking ahead, management guidance expects revenue growth in fiscal year 2026 to range between 12% and 14%, lifting revenue to around $51.2 billion with a targeted operating margin of 31.5% representing a two percentage point YoY increase

Despite the positive numbers, Netflix shares fell by 5% following the announcement after market close, and down roughly 37% from last year's peak. This decline appears to be driven by two main factors, the first relates to concerns over unexpected margin compression which raised questions around cost control amid an ongoing tax dispute in Brazil worth approximately $600 million bringing regulatory risks back into play.

The other factor closely watched by investors is the potential acquisition of Warner Bros for $83 billion, which would add a significant level of complexity and risk. With existing debt of around $14.5 billion, executing a deal of this size would increase leverage and heighten integration and add execution challenges to the current business lines.

In short, Netflix's results reaffirm the strength of its core business and its ability to generate cash. However, the market reaction reflects a shift in focus away from growth alone toward margin sustainability and greater control in capital management in the coming period, alongside greater clarity around the highly scrutinised Warner Bros potential acquisition.