Shares of TV specialist Netflix (NFLX 0.73%) sank in after-market hours on Tuesday when the company reported its fourth-quarter results. The quarterly results, in and of themselves, were great, featuring top-line year-over-year growth that accelerated and a widening of its operating margin. But shares slid anyway.
So why did shares fall about 5% after the company reported its latest quarterly results, adding to an already brutal sell-off recently?
There could be several factors that spooked investors. But one factor in particular looks like an especially good reason for investors to be concerned: management's guidance for significantly slower constant-currency revenue growth in 2026 compared to 2025. Management's guidance on this key metric implies a substantial step-down in Netflix's growth pace.
Image source: Netflix.
Netflix's fourth-quarter results: what is going right
Overall, Netflix's fourth quarter was exceptional. Starting with its top line, Netflix's fourth-quarter revenue rose 17.6% year over year, accelerating from 17.2% growth in the third quarter of 2025. Furthermore, the company's operating margin of 24.5% marked an expansion from 22.2% in the fourth quarter of 2024. This powerful combination of strong double-digit revenue growth and significant operating margin expansion led to outsize earnings growth. Netflix's fourth-quarter earnings per share rose 30% year-over-year to 56 cents.
Additionally, the company's free cash flow looked great. Netflix's free cash flow for the fourth quarter of 2025 was about $1.9 billion, up from about $1.4 billion in the fourth quarter of 2024.
And then there's the streaming giant's 3-year-old advertising business. Netflix said its advertising revenue in 2025 was 2.5 times that in 2024, totaling $1.5 billion (more than 3% of total 2025 revenue).
Topping it all off, Netflix said that it crossed 325 million paid memberships, highlighting the company's massive reach.
Netflix's fourth-quarter results: what may have disappointed investors
So why would investors be disappointed with results like this?
One thing that may be bugging some investors is the company's full-year revenue guidance. On the surface, Netflix's forecast for 12% to 14% year-over-year revenue growth in 2026 may not seem too disappointing. After all, this is exactly what Netflix forecast when it was headed into 2025.
But when you compare the company's initial 2025 revenue forecast on a currency-neutral basis to its 2026 forecast on the same basis, management is entering 2026 with a much more subdued outlook. When Netflix reported its fourth-quarter 2024 results last year, management guided for revenue on a constant-currency basis to increase 14% to 17% year over year. For 2026, however, management expects constant currency revenue growth of 11% to 13%.
NASDAQ: NFLX
Key Data Points
Given the stock's premium valuation, with a price-to-earnings ratio in the mid-30s, it makes sense that the growth stock would sell off following a forecast for meaningfully slower growth. Note that last year, Netflix's 2025 constant-currency revenue growth rate came in at 17% for the full year -- at the high end of management's initial guidance range for the year. If the company again delivers revenue at the high end of its constant-currency revenue growth forecast range, Netflix's 2026 revenue will grow by just 13%. This would be a substantial slowdown from 17% growth in 2025.
Ultimately, given Netflix's outlook for slower growth this year than last, I don't think this is the right time to buy shares in the streaming service company's stock. Sure, management expects a strong first quarter with revenue during the period rising 15.3% year over year. But growth could decelerate further in 2026, putting pressure on the stock given the high expectations baked into its valuation.
For now, I think the best move is to be patient. Perhaps investors will get a better entry point into the stock at some point later this year.
