Netflix’s surprise announcement sends share price plunging, as broader market rallies to record

Netflix looks like it will have a rough ride on Friday. The share price sunk more than 8% in after-hours trading, even though its Q1 earnings report beat expectations. There were some pockets of weakness, including weaker forward guidance for revenues, and news that the co-founder of Netflix and current chair, Reed Hastings, would step down from his position in June. He has been with Netflix since the beginning, although he stepped back as CEO in 2023.

Netflix faces tougher competition from a muscular Paramount

This was unexpected news, and Hastings is seen as the DNA of the company. His vision changed the way the world watches television, and his disruptive style of leadership has been a lesson for American corporate culture this century. Hasting’s departure from Netflix has jolted investors at an interesting time for the company. After pulling out of the race to buy Warner Brothers, Netflix may keep its balance sheet tough and flexible, but it will also face greater competition from a more muscular Paramount.

The failed deal was referenced in the earnings report. The company said that Warner Brothers would have been a nice accelerant for its operating strategy, but only at the right price. It added that it has many ways to achieve its goals, including ‘producing, licensing and partnering’, and it continues to look out for attractive opportunities. Thus, Netflix has not ruled out a large acquisition in the future. Perhaps this is why the company did not throw in any extra sweeteners for investors, like a dividend. The failure to do so may have also added to the downside pressure in the stock price in after-hours trading.

Future content slate not enough to keep the bears at bay

There was nothing else for Netflix to say about the failed Warner Brothers deal, and while the company announced an exciting upcoming slate of content for the rest of this year, this did not placate the bears. This includes Here Comes the Flood with Denzil Washington, Greta Gerwig’s Narnia and Will Ferrell’s The Hawk. Lupin season 4 is another highlight, as is One Hundred Years of Solitude season 2. The company is launching a standalone gaming app for children, and it also announced further enhancements to its mobile video launch that is due later this month. There will also be more live sports events, including the Tyson Fury and Anthony Joshua boxing match.

Investors’ beef with Netflix

Investors’ main beef with Netflix is the forward guidance. Netflix only reiterated its full year revenue forecast of $50.5 - $51.7bn, and Q2 revenue growth is expected to rise 13%, investors had wanted more. Once the dust settles and investors digest the news that Hastings is leaving the company, the market may assess Netflix’s Q2 growth forecast as too conservative. The new price increases only took effect on 26^th March, so they should have a bigger impact on the Q2 numbers compared to Q1, added to this, the company confirmed that advertising revenues should come in at $3bn for 2026, which is double 2025’s figures. However, the strong slate of live events, which includes more concerts and regional events, could see upside risks to the advertising forecast. Engagement from live events has been huge. Netflix reported that the World Baseball Classic, which was exclusive to Japan, drew more than 31.4mn viewers, and led to the single biggest day of sign ups for the country. Live events including sports and concerts are big business for Netflix, this could become an even bigger focus for the company now that it has walked away from the costly acquisition of Warner Brothers.

Why the market could be too eager to sell Netflix

Looking ahead for the Netflix share price, it could have a bumpy ride on Friday. It has had a strong run this year and is higher by 14% YTD. Only if the company thinks that the departure of Reed Hastings will leave a hole that can’t be filled by the current executive committee, will the share price continue to decline in our view. Our base case is that the market may be overreacting to this news.

Broader US market reaches fresh records

The sell-off in Netflix after the market closed contrasted with the record highs for the S&P 500 and the Nasdaq on Thursday. Hopes that the conflict in the Middle East will reach a swifter resolution now that Israel and Lebanon have agreed a 10-day ceasefire boosted the market mood. Interestingly, stocks rallied even though the oil price rose back towards $100 per barrel. Brent crude rose 4.7%, as the Strait of Hormuz remains shut and the end of the initial period for the US/ Iran ceasefire edges closer. The energy sector helped to power the US markets to fresh highs, and it rose by more than the tech sector. Market movers on Thursday included consumer focused stocks like Pepsi, which rallied more than 2% on the back of a strong set of earnings, and the stock price is closing in on the record high set in April 2023.

The fact that stocks can rally alongside the oil price tells us two things: 1, the market is becoming desensitized to events in the Middle East, and 2, fundamentals are once again in the driving seat for stock price movers this earnings season.

Why Oracle’s share price might come down to earth

Oracle extended gains for another day and was higher by more than 5%. The share price has surged 29% in the last 5 days. This strong rally has to come to a halt at some stage. Even though the recovery rally is due to a broader shift in sentiment towards tech in general and especially big, well established software firms, it will not continue to rally in a straight line.