Netflix expected to see ad boom, even as Warner Bros. acquisition casts shadow on earnings

By Lukas I. Alpert

Analysts say Netflix's fundamentals remain strong with big growth expected from its ad biz in 2026, despite lower stock targets being set due to M&A uncertainty

While investors don't seem to happy that Netflix CEO Ted Sarandos has moved to acquire Warner Bros. Discovery, analysts say Netflix's business fundamentals remain strong and are predicting strong ad growth ahead. (Photo by Blanca CRUZ / AFP via Getty Images)

Netflix has attracted much of its attention lately due to its industry-changing effort to acquire Warner Bros. Discovery, but underneath it all Netflix's business remains strong going into earnings, say analysts who are projecting major growth from its ad business in the year ahead.

The shadow cast by the uncertainty over its $82.7 billion bid for Warner Bros. Discovery Inc. (WBD), has weighed heavily on Netflix Inc.'s (NFLX) share price, and has led several analysts to lower their targets for the stock.

Netflix shares, which closed Friday at a nine-month low, are down 34.3% since reaching a record close of $133.91 on June 30.

Still, analysts say the company's fundamentals remain solid, and there is much to be positive about.

"We think Netflix is positioning for substantial growth in global advertising, and that should not be overlooked," Alicia Reese, media analyst at Wedbush Strategies, wrote in a note to clients. "We expect ad revenue to become Netflix's primary revenue driver in 2026, with significant opportunities in 2027."

Analysts polled by FactSet are predicting that Netflix will report fourth quarter net income of $2.4 billion, and earnings per share of 55 cents, when it puts out its results after Tuesday's closing bell. That's on expected revenue of $11.97 billion for the quarter and earnings per share of 55 cents.

In the third quarter, Netflix reported a big miss on profit, due to an unexpected court loss in Brazil related to a one-time $619 million tax expense there.

When reporting those earnings, Netflix predicted revenue growth of 17% in the fourth quarter and a 23.9% gain in operating margin. For the full year, they predicted revenue of $45.1 billion, which is in line with analysts' forecasts.

The Warner Bros. acquisition, which has triggered a hostile takeover effort from rival Paramount Skydance Corp. (PSKY) and will likely face heightened regulatory scrutiny, has proven a distraction, weighing heavily on the stock price.

In a Thursday note, KeyBanc said it had lowered its price target to $110 per share from $139, "to reflect a more conservative multiple due to uncertainty around the Warner bid." Wedbush similarly lowered its target to $115 from $140 on Thursday.

Since the beginning of December, about a quarter of the 48 analysts surveyed by FactSet have lowered their stock price targets.

Netflix's ad strategy is two-pronged: first to reduce churn - or the steady departure of subscribers who cancel the service - by offering a lower-priced option that includes ads, and second to drive revenue through the sale of ads.

Netflix's ad business remains relatively new, so revenue from the ads themselves still represents a small portion of the company's overall business, but it is expected to grow steadily in the coming quarters.

Last year, Netflix set ambitious internal growth targets of doubling its revenue by 2030 and reaching a market capitalization of $1 trillion, but this was before it moved to acquire Warner Bros. Netflix's current market valuation is around $400 billion.

-Lukas I. Alpert

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01-20-26 0604ET