Netflix, Inc. NFLX

Because about $2.8 billion of the profit came from a one-time fee, not from operations. Netflix collected a $2.8 billion termination fee from Paramount after walking away from its bid for Warner Bros. Discovery; it was booked below the operating line in "interest and other income," which normally runs about $45–50 million a quarter. Operating income — the part from subscriptions and ads — grew 18% to $3.96 billion. Net income reached $5.28 billion, but roughly $0.53 of the $1.23 diluted EPS was the fee, so the "clean" quarter was nearer $0.70.

Netflix trades near 22 times its expected 2026 earnings of about $3.59 a share, and roughly 26 times trailing earnings. That forward multiple sits below the stock's ~30x five-year average, which is why some frame it as re-rated rather than rich. But the trailing 26x is flattered: strip out the one-time $2.8 billion Warner Bros. fee and the clean trailing multiple is closer to 31x. The market is paying a premium-but-compressed multiple for 12–14% revenue growth and operating margin guided to 31.5% in 2026.

Netflix stopped disclosing quarterly paid-membership counts at the start of 2025, shifting attention to revenue and engagement instead. The last figure it confirmed was roughly 325 million subscribers at the end of 2025, and external estimates since then are not official. Management now leads with revenue (guided to $50.7–51.7 billion in 2026, up 12–14%), operating margin (31.5%), and an internal engagement metric it says hit an all-time high in Q1 2026. The change retired the very number bulls once rallied on.

Three engines: advertising, pricing, and live programming. The ad business roughly doubled to more than $1.5 billion in 2025 and is guided toward $3 billion in 2026, now on Netflix's own ad technology, reaching over 250 million monthly viewers. Pricing added a second lever — a U.S. increase in March 2026, the second in under two years, lifted the ad-free Standard plan to $20. Live rights (NFL Christmas games, weekly WWE, and a new MLB package) deepen engagement and feed the ad tier. Even so, advertising is still only about 6% of revenue.

The biggest is earnings quality: about $2.8 billion of recent profit was a one-time fee, so clean earnings sit well below the headline $1.23 a share. Management's own guidance also bends revenue growth from +17% in 2025 to +12–14% in 2026, and Q2 was guided below Wall Street. Content spending climbs toward $20 billion as live-sports rights ramp, advertising is still only ~6% of revenue, and YouTube already outdraws Netflix on the TV screen (about 12.7% vs 9% of U.S. viewing). Regulators also just cleared Paramount's roughly $110 billion takeover of Warner Bros. Discovery.

It shows Netflix chose discipline over scale — and was paid $2.8 billion for it. Netflix had agreed to acquire Warner Bros. Discovery, but when Paramount Skydance topped the bid (around $110 billion), Netflix declined to match, calling it no longer financially attractive, and collected the contractual breakup fee in February 2026. The cash receipt lifted Q1 free cash flow to $5.09 billion and let Netflix raise its 2026 cash-flow guide toward $12.5 billion. The cost of that discipline is a bigger, better-capitalized streaming rival once the deal closes.