Netflix Earnings: No Guidance Raise, Light Q2 Margin Forecast, and International Slowdown Disappoint

Key Morningstar Metrics for Netflix

• Fair Value Estimate
  : USD 80
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Netflix’s Earnings

Netflix’s NFLX first-quarter sales and margins exceeded its guidance, and it said the year is tracking its outlook. However, the market likely hoped for increased full-year guidance, given that the March price hikes came as a surprise, ostensibly enabled once the Warner Bros. acquisition fell through.

Why it matters: We believe shares have been priced for midteens annual sales growth. The 2026 outlook of 11%-13% organic growth was fine when it seemed the next US price increase would occur around year-end, consistent with the historical cadence. Growth acceleration in 2027 now seems less likely.

• Generating more revenue per user must be the primary growth driver, in our view, because Netflix has largely saturated the subscriber market in the US and many of the highest-priced international countries. The US price increase came only 14 months after the previous one and exceeded 10%.
• We don’t think Netflix can raise prices at these rates annually, but think that’s what it will take to maintain low-teens growth. The advertising business remains small, and its contribution must offset any subscriber mix shift to lower-priced plans.

The bottom line: We maintain our USD 80 fair value estimate, which reflects these views. We forecast 10% average sales growth through 2030. Netflix is the only firm we cover with a moat (narrow) based on a streaming business and is worth owning at an appropriate price, which it is now approaching.

Key stats: Adjusted for currency fluctuations and hedging, total sales growth was 13% year over year, including only 12% in international markets, which had been growing in the high teens.

• The firm called out several strong markets in Asia and got an additional tailwind from tremendous success in Japan with the World Baseball Classic. Still, Asia-Pacific grew only 20% year over year—the bottom of its recent range.
• Currency-neutral sales in Europe, the Middle East, and Africa grew only 8.5% year over year, well off the recent midteens rate.