Netflix shares fell 9% in extended trading on Thursday after the company reported first-quarter earnings and announced that co-founder Reed Hastings will exit the board in June.
The streaming giant posted revenue of $12.25 billion for the quarter, beating the $12.18 billion expected by analysts and marking a 16% increase from the same period last year. Net income reached $5.28 billion, or $1.23 per share, nearly double the $2.89 billion, or 66 cents per share, reported a year earlier.
The profit surge was largely driven by a $2.8 billion termination fee Netflix received after walking away from its proposed acquisition of Warner Bros. Discovery’s streaming and film assets in February. The company decided the deal was no longer financially attractive and declined to sweeten its offer, effectively ceding the media giant to a rival bid from Paramount Skydance.
Despite the strong financial results, investors reacted negatively to the dual announcement of Hastings’s impending departure and the earnings report. The stock plunged more than 9% in after-hours trading, with Al Jazeera reporting an approximately 8% drop tied directly to the news of his exit.
Hastings, who co-founded Netflix 29 years ago as a DVD-by-mail service, stepped down as CEO in early 2023, ceding daily control to co-chief executives Greg Peters and Ted Sarandos. He will depart the board when his term expires in June, stating in a shareholder letter that he plans to focus on philanthropy and other pursuits.
“Netflix changed my life in so many ways,” Hastings wrote. “My all‑time favorite memory was January 2016, when we enabled nearly the entire planet to enjoy our service.” The note underscored a personal milestone amid a period of strategic transition for the company.
Netflix maintained its full-year revenue guidance of $50.7 billion to $51.7 billion and said it expects second-quarter revenue to grow 13%. The company warned that content spending would remain weighted in the first half of 2026 due to title launch timing, with the second quarter expected to see the highest year-over-year content amortization growth rate before declining later in the year.
Even though the Warner Bros. Discovery deal was terminated, CFO Spencer Neumann noted that some costs originally planned for 2027 would now be incurred in 2026, keeping the company “in the ballpark” of its projected total M&A-related expenses for the year.
The failed acquisition has broader implications for the media landscape. By stepping back, Netflix allowed Paramount Skydance to move forward with its bid for Warner Bros. Discovery, a deal currently undergoing regulatory and shareholder approval. If completed, the transaction would give the Ellison family control of CNN, a development that has drawn attention due to Larry Ellison’s ties to former President Donald Trump and ongoing scrutiny over potential White House influence on media ownership.
Netflix has emphasized that the Warner Bros. Pursuit was always a “nice to have, not need to have” strategy. Instead, the company is doubling down on areas like video podcasts, live entertainment — including the World Baseball Classic in Japan, which it says boosted engagement in that market — and technology-driven improvements to user experience and monetization.
Advertising revenue remains on track to reach $3 billion in 2026, a twofold increase from the previous year. Analysts note that the funds saved by abandoning the Warner bid could be redirected toward audience-drawing content and ad-supported growth, a shift some view as a net positive despite the short-term stock reaction.
“Netflix won with investors when it lost Warner Bros Discovery,” said Emarketer senior analyst Ross Benes, capturing the counterintuitive sentiment that walking away from a costly deal may have strengthened the company’s long-term position.
Why did Netflix’s stock drop despite strong earnings?
The share price decline was driven more by the announcement of Reed Hastings’ impending board departure than by the earnings themselves. Even as revenue and profit beat expectations, the combination of a leadership transition and uncertainty about Netflix’s strategic direction spooked investors, according to analysts cited by Al Jazeera and CNBC.
What will happen to the $2.8 billion termination fee from the Warner Bros. Discovery deal?
Netflix has not specified how it plans to leverage the $2.8 billion termination fee received after walking away from the Warner Bros. Discovery acquisition. The company said it remains focused on investing in content, technology, and advertising growth, but did not allocate the funds to any specific initiative in its earnings report.
