Netflix Shares Face Critical Test Ahead of Earnings Release

The coming days represent a pivotal moment for Netflix, with the streaming giant set to announce its fourth-quarter results after the U.S. market closes tomorrow. Anticipation is building, with traders bracing for significant price volatility. While U.S. exchanges are closed today for the Martin Luther King holiday, the company's shares have shown stability in international trading. Beyond the core operational metrics, investor focus is intensely fixed on the uncertainty surrounding the proposed acquisition of Warner Bros. Discovery assets.

All eyes are on tomorrow's post-market earnings release. Consensus estimates from market analysts point to the following figures for Q4:

• Revenue: Approximately $11.97 billion, marking a 17% year-over-year increase.
• Earnings Per Share (EPS): $0.55, representing a rise of nearly 30% compared to the prior year.

Market observers are scrutinizing three specific areas with particular intensity:

1. The Ad-Supported Tier: This subscription model is viewed as a crucial revenue growth driver for 2026.
2. Subscriber Growth: Further net additions are forecasted, supported by upcoming content like "Stranger Things" Season 5 and the live Christmas Day NFL game broadcasts.
3. Forward Guidance: For 2026, Netflix is expected to project revenue growth of at least 13%.

This blend of solid performance and high future expectations places considerable pressure on management to deliver convincing numbers and a robust outlook.

The Overhang of the Warner Bros. Discovery Deal

Despite a positive operational backdrop, Netflix's stock currently trades roughly 30% below its six-month highs. The primary drag on sentiment stems from the planned $82.7 billion acquisition of Warner Bros. Discovery assets, announced in December 2025. The deal structure involves a mix of cash and stock.

However, a competing all-cash bid of $108.4 billion from Paramount Skydance has since emerged. This bidding war is currently capping the equity's upside potential, as investors weigh the risks of a potential overpayment and a protracted antitrust review process.

Political Scrutiny Adds a Layer of Risk

The proposed transaction has gained additional complexity due to recent financial disclosures. These indicate that President Donald Trump established significant bond positions in both Netflix and Warner Bros. Discovery in late 2025, following the initial merger announcement.

Should investors sell immediately? Or is it worth buying Netflix?

Reports suggest the President intends to involve himself in the regulatory decisions surrounding the deal. This political dimension introduces further unpredictability into an already sensitive antitrust proceeding, presenting an additional risk factor that institutional investors are monitoring closely.

Analyst Sentiment and Options Market Signals

The derivatives market is pricing in heightened nervousness ahead of the earnings report. Options-implied volatility suggests the share price could move around 7% by the week's end. This projects an immediate post-earnings trading range between approximately $82 and $94.

Notwithstanding the acquisition concerns, research analysts maintain a generally confident stance on the core business:

• Average Price Target: ~$135, implying roughly 50% upside from current levels.
• BMO Capital Markets: Target of $143.
• Bernstein: Target of $125.
• Pivotal Research: Target of $105.

The wide gap between the current share price and these targets underscores the substantial risk premium the market is assigning to the potential deal.

Technical Outlook and Potential Price Paths

From a chart perspective, the shares are currently trading in the lower half of their 52-week range. In the near term, technical support around the $88 level is critical. A break below this level, potentially triggered by disappointing guidance, could see the stock test its 52-week low near $82.

Conversely, a decisive earnings beat coupled with greater strategic clarity regarding the Warner Bros. Discovery situation could prompt a swift re-rating toward the $100 mark. Ultimately, the short-term trajectory hinges on Netflix's ability to restore investor confidence both operationally and strategically with tomorrow's report.