Netflix reported first quarter results recently. Revenue came in at $12.25 billion. It beat estimates. Operating profit was up 18%. Engagement hit a record. And what did the stock do? It fell 9% right after the announcement.
Yes, you read that right. And as if that were not enough, Reed Hastings, the man who started it all 29 years ago, announced that he is leaving the Board of Directors.
WHAT HAPPENED
You might be wondering, “How does that make sense?
The company is making money and the stock still drops?”
And honestly, that reaction makes sense. It looks irrational. But Wall Street does not only care about what happened. It cares about what it expects will happen next.
And this is exactly where guidance comes into play. Netflix said that for the second quarter it expects revenue growth of 13%. That sounds good, right? But analysts were expecting more. A lot more.
Why? Because a few weeks earlier, the Warner Bros acquisition fell apart. Paramount won the battle with a $111 billion offer and paid Netflix $2.8 billion as a breakup fee. Wall Street was thinking, “Great, if the deal is off, then you will probably raise guidance or do buybacks.” It did neither. Operating margin came in at 32.3%. And full year guidance stayed at $50.7 to $51.7 billion. No change.
And that was enough for the market to punish the stock. A classic beat and drop. What does that actually mean? Very simply, on Wall Street it is not enough to post strong numbers. You have to post numbers that are better than what the market was already expecting. If you do not clear that bar, you get punished, even if the results were objectively very good.
HASTINGS STEPS AWAY
And then came the second big headline. Reed Hastings announced that he will leave the Board in June, after 29 years.
You might say, “Wait, did he not already step down as CEO?” Yes, he did, back in 2023. But he remained Chairman. He was still the soul of the company. He was the person who took a DVD rental business and turned it into the global leader in streaming. Then came ads. Then live sports. Then video podcasts. Every time the market doubted the company, Hastings seemed to make the next move.
Analyst Rich Greenfield of LightShed made a very sharp point: investors will need time to process Hastings’ departure. Bloomberg even described him as someone who was always ahead of the curve.
But that is not the only thing worth watching. On the earnings call, co-CEO Ted Sarandos said something that did not go unnoticed: they are no longer ruling out acquisitions. That means Netflix, a company that was always seen as a builder rather than a buyer, is now opening the door to M&A. Hastings’ departure raises a major question: what is the next big move without the founder still at the table?
WHAT ANALYSTS ARE SAYING
And this is where things get even more interesting. Because despite the selloff, most analysts are still saying “buy.”
Morgan Stanley has an overweight rating with a $115 target. Goldman Sachs has a buy rating with a $120 target and argues that the results still support the long term thesis. Piper Sandler also rates it overweight with a $115 target. On the other hand, Wells Fargo is more cautious, with an equal weight rating and a $100 target, saying that Netflix is still a quality compounder, but no longer the share gainer it once was.
So what do they see ahead? Three new growth pillars.
First, advertising revenue. The company is targeting $3 billion this year, double last year’s level.
Second, live sports. Netflix is in talks with the NFL about expanding its relationship, while the World Baseball Classic turned into a major hit.
Third, video podcasts, a new format that helped push engagement to an all time high.
And let us not forget that Netflix now has 325 million subscribers worldwide. It is also targeting 12% to 14% revenue growth for full year 2026.
There is one more thing that matters here. In March, Netflix raised prices across all its plans. The ad supported tier went to $8.99 from $7.99, standard went to $19.99 from $17.99, and premium went to $26.99 from $24.99. This was the first price increase since January 2025. Goldman Sachs believes these increases will be one of the main drivers of profitability in the coming months.
At the same time, the company plans to spend $20 billion on content this year, up 10% from $18 billion in 2025. That explains why margin guidance was not raised. The money is going into investment, not straight into profits.
So what is the takeaway?
The company is changing. It is no longer just about movies and series. It is moving into sports, advertising, and podcasts. It is becoming a full scale media empire. The stock is currently up 4% this year, trades at 26 times earnings, and has a consensus target of $119, which implies about 12% upside from current levels.
And honestly, that is what makes it such an interesting stock to watch, even if I am not planning to buy it tomorrow.