Netflix (NASDAQ:NFLX) executives reiterated the company’s full-year 2026 outlook on its Q1 2026 earnings interview, pointing to what they described as strong early-year momentum and continued confidence in organic growth. Spencer Wang, Netflix’s VP of Finance and Capital Markets, hosted the call alongside co-CEOs Ted Sarandos and Greg Peters and CFO Spencer Neumann, with management addressing questions ranging from margin guidance and advertising to live sports, podcasting, gaming, AI, and board succession.
2026 guidance unchanged; advertising expected to reach $3 billion
In response to a question about margin guidance and the effect of costs tied to a now-abandoned Warner Bros. transaction, Peters said the company is “maintaining our guidance” established for 2026. Management reiterated targets of 12%–14% revenue growth and 31.5% operating margin, which Peters said includes “roughly doubling the advertising business to about $3 billion.”
Warner Bros. deal costs, M&A discipline, and capital allocation
CFO Spencer Neumann said Netflix’s January guidance included $275 million of M&A-related expenses, which he emphasized was not solely tied to Warner Bros. Neumann said the company’s forecast also reflected the InterPositive acquisition, which “wasn’t announced yet” at the time and flows through operating expenses.
On Warner Bros., Neumann said that while Netflix “walked away from the deal” and some costs “won’t fully materialize,” other costs originally expected in 2027 were “pulled forward into 2026.” Overall, he said Netflix remained “in the ballpark” of its total M&A-related expense projection, with “no material impact” to operating margin guidance and “not a reflection of some increase or acceleration in other expenses in the year.”
Asked what Netflix learned from the Warner Bros. experience and whether it changed the company’s appetite for M&A or capital structure, Sarandos reiterated that the deal was “a nice to have, not a need to have,” and said management’s “biggest risk was losing focus on our core business.” He said the process helped Netflix build “deal execution” and “early integration” capabilities and, importantly, “tested our investment discipline.” Sarandos said Netflix walked away when the cost “grew beyond the net value” to the business and shareholders.
Sarandos added the company’s capital allocation approach is unchanged: investing “organically and opportunistically with M&A,” maintaining liquidity, and returning excess cash through “share repurchase.” He cited InterPositive as an example of opportunistic M&A and said the company would remain “very disciplined” in how it approaches deals.
Engagement, Nielsen methodology, and advertising mix
On engagement, Peters said Q1 view hours grew at a similar rate to the second half of 2025 “despite having the Winter Olympics” as “robust streaming competition” in the quarter. He said Netflix’s “primary member quality metric” hit “another all-time high” in Q1, though he declined to detail how it is composed, describing it as a competitively sensitive “cheat sheet.” Peters said Netflix validates the metric through its ability to predict or explain core outcomes such as retention.
When asked about Nielsen’s revised methodology for its Gauge report, Peters said the change reflects “a change in how they calculate the national TV universe,” not a change in consumer behavior. He said the new approach “reduces the weight of streaming-only households” and increases the weight of linear households, making streaming appear smaller. Peters noted Netflix has its own viewing data and said Nielsen’s Gauge “is not the currency for the video marketplace.” As a result, he said the shift does not change Netflix’s ad ambitions, and the company still expects to deliver $3 billion in advertising revenue in 2026.
On ad-market execution, Peters said moving to Netflix’s own ad tech stack has made it easier for advertisers to buy, and the company has added more DSPs, driving significant growth in programmatic buying. He said programmatic is “on its way to becoming more than 50% of our non-live ads business.” Peters also said Netflix’s advertiser base grew “over 70% year-over-year in 2025” to “more than 4,000 advertisers,” while noting the company remains concentrated in top advertising accounts serviced primarily by Netflix sales teams, with expectations that programmatic share will continue to rise over time.
Live sports momentum, podcasts, pricing signals, and gaming expansion
Management highlighted live programming as an area of growing emphasis. Sarandos said Netflix’s recent World Baseball Classic event was “the most watched program we’ve ever had in Japan” and “the biggest global baseball streaming event of all time,” totaling 31.4 million viewers. He said it also drove “the largest single sign-up day ever in Japan,” with Japan leading Q1 member growth globally and posting its “highest quarter of paid net adds” in the company’s history.
Discussing broader sports strategy, Sarandos said Netflix remains most interested in “big breakthrough events” rather than regular-season packages, and that any sports investments must make “economic sense” across both viewing and advertising benefits. He said Netflix is in discussions with the NFL because it sees an opportunity to expand the relationship “within the same strategy.” Sarandos also referenced recent and prior live efforts including an opening-night MLB game, Christmas Day NFL games, fights, and other live events such as “Skyscraper Live,” a “Star Search reboot with live voting,” and a “BTS comeback concert.”
On podcasting, Peters said Netflix is seeing early signs of “incremental engagement,” particularly in daytime usage and mobile consumption. He cited licensed and owned shows including “The Bill Simmons Podcast,” “The Breakfast Club,” “Therapuss,” “Pardon My Take,” and Netflix podcasts including “The White House” with Michael Irvin and “The Pete Davidson Show,” along with companion podcasts such as “The Bridgerton Official Podcast.” Peters also said Netflix announced new podcasts from Brian Williams, Evan Ross Katz, Steven Soo, Allison Barber, and David Kwong.
Regarding recent U.S. subscription price increases, Peters said the change was planned and informed by member signals such as “quality-weighted engagement,” plan selection and moves, and retention. He said early indicators are “in line with our expectations” and consistent with Netflix’s historical experience in the U.S., noting the rollout was still ongoing. Peters also said Netflix’s ad-supported plan at $8.99 is intended to remain a “great entry point.” Neumann added that retention trends improved year-over-year in every region in the quarter.
On gaming, Peters described the market opportunity as roughly $150 billion in consumer spend outside China and Russia, excluding ad revenue. He said Netflix has learned that gameplay can positively affect retention and drive acquisition, though the “observed effect” on acquisition has been “small to date.” Peters said key focus areas include games tied to Netflix IP, games on TV, and kids experiences. He introduced “Playground” as a separate kids gaming app, emphasizing curated, age-appropriate titles tied to properties such as Peppa Pig and Dr. Seuss, with “no ads” and “no in-app purchases.”
AI, InterPositive, and Reed Hastings’ board transition
On generative AI, Sarandos said the company expects the technology to help “make content better and better” through “better tools” and “better processes,” while emphasizing that “it takes a great artist to make great art, and AI won’t change that.” He said Netflix talent already uses AI tools for set references, pre-visualization, visual effects, sequence prep, and shot planning, adding that such tools can also improve on-set safety.
Sarandos said the InterPositive acquisition accelerates Netflix’s gen AI capabilities, describing it as proprietary technology “created specifically for filmmakers.” Peters added that Netflix sees AI opportunities where it has unique data at scale and where it can attach the technology to scaled processes, citing content production, member experience (including recommendation systems), and advertising capabilities within the Netflix Ads Suite.
Finally, executives addressed Reed Hastings’ decision not to stand for re-election to Netflix’s board at the upcoming annual meeting. Sarandos said there was “no” connection to Netflix’s pursuit of the Warner Bros. deal, adding that Hastings “was a big champion for that deal” and that the board “unanimously supported” it. Sarandos said Hastings will remain chairman and a board member through his current term, while the board and its governance committee take next steps in reshaping the board. Both Sarandos and Peters offered personal remarks praising Hastings’ leadership, culture-building, and approach to succession.
About Netflix (NASDAQ:NFLX)
Netflix, Inc (NASDAQ: NFLX) is a global entertainment company that provides subscription-based streaming of films, television series, documentaries and other video content. Founded in 1997 by Reed Hastings and Marc Randolph and headquartered in Los Gatos, California, the company began as a DVD-by-mail rental service and introduced streaming video in 2007. Netflix later expanded into producing and distributing original programming, beginning notable original hits in the 2010s, and now operates a content production and distribution ecosystem alongside its licensing activity.
The company’s primary product is its on-demand streaming service, which can be accessed on a wide range of internet-connected devices and delivered through a suite of apps and web platforms.
