That decision matters more than anything in its latest first quarter 2026 earnings report.

A Quarter That Looks Like Growth, But Reads Like Control

The streaming company reported $12.25 billion in revenue, up 16% year-over-year, alongside earnings per share of $1.23 versus $0.79 expected, a spread wide enough to signal not just a beat, but a business operating ahead of expectations. Operating income came in at $3.86 billion, and an operating margin of 31.5%, a level that would have been unthinkable for Netflix just a few years ago, when profitability was still being sacrificed for scale, as shown in their letter to shareholders.

At the same time, the company now serves over 325 million global memberships, and I want you to actually process what that means, because once you reach that level, the game changes from expansion to extraction. Free cash flow continues to trend strongly positive, with Netflix generating roughly $2.1 billion in free cash flow for the quarter, reinforcing a business that is no longer dependent on external financing to sustain its model.

The Growth Engine Is Far From Rusty

The engine driving this performance has shifted in a way that most investors still underestimate. Revenue is no longer primarily a function of subscriber additions; it is increasingly driven by how much each user is worth. That is where pricing and advertising come in.

Netflix expects its ad-supported tier to generate approximately $3 billion in revenue in 2026, effectively doubling year-over-year, which introduces a second monetization layer that scales alongside subscriptions without requiring equivalent growth in users . 

At the same time, content spending remains elevated, but it is being deployed with far more discipline. Instead of chasing volume, Netflix is focusing on efficiency – on titles that travel globally and deliver sustained engagement. That shift is subtle, but it shows up in the margins, and you can already see it in that 31.5% operating margin holding firm even as the platform continues to invest.

The $87.5 Billion Pass Explains Everything

This is where I think most people misread the situation.

Live sports is the most aggressive growth lever in streaming today, and if Netflix had leaned into that $87.5 billion opportunity regardless of the lawsuit, the long-term upside could have been substantial. You would likely see stronger engagement, deeper ad monetization, and a broader ecosystem forming around live content.

At the same time, you would also see margins come under pressure. Cash flow would tighten. Earnings would become less predictable.

Right now, Netflix is delivering great figures in free cash flow, and that stability exists because the company is not tying itself to assets that demand constant reinvestment and escalating bidding wars. By walking away, Netflix preserved its structure.

So yes, they passed on growth. But they protected quality, and in this phase of the business, that matters more.

A Market That Understands the Trade-Off

Strangely, a quarter with this level of revenue growth, earnings beat, and margin strength would normally trigger aggressive upside. But price action flipped the script.

Heading into earnings, Netflix traded around $97–$100, holding just above its 50-day moving average with no aggressive positioning. The initial reaction was strong, the NFLX price broke above $100 and pushed toward $106 on expanding volume, signaling institutional participation.

But it didn’t hold as it gapped down nearly 9% back to $97, rejecting higher prices immediately after the breakout. RSI sits around 47.9, confirming a reset in momentum rather than a breakdown.

The move higher reflects confidence in the earnings, while the sharp gap down reflects hesitation about what comes next.

Meaning, we are no longer dealing with a company that the market prices purely on growth acceleration. But one that is being evaluated on how well it can sustain what it has already built. 

Hastings Leaving Is Not a Footnote

Reed Hastings built Netflix from DVD mailers into the dominant global streaming platform, effectively rewriting how content is distributed and consumed at scale. That kind of leadership is built for one phase of a business – the phase where you are creating something from nothing, pushing through resistance, and growing faster than the market expects. But this phase demands discipline, capital control, and consistency to maintain the company’s legacy.

A Business That Knows What It Is Now

A company generating $12.25 billion in quarterly revenue at a 31.5% operating margin with $2 billion in free cash flow is not experimenting. It has a model, it understands the model, and it is executing against it with growing precision. Debt remains manageable relative to cash generation, and the continued free cash flow build strengthens its ability to fund strategy internally without returning to external capital markets. Consequently, it is no longer about whether Netflix can grow, but how deliberately it chooses to.

Perfect Entry Point For Buyers

Netflix has not abandoned growth. It has redefined it, and the numbers make that case cleanly. Revenue up 16%, margins at 31.5%, free cash flow above $2 billion, monetization runway still expanding. The $87.5 billion pass was discipline, not retreat. Of course, the leadership transition is a real variable worth watching. But a business with this margin profile and cash generation doesn’t stay mispriced for long. This presents good entry points, and I’d be a buyer here.

If you listen to the billionaire often enough – as we do – the message is always simple. You just need to buy and hold sizable, growing companies with consistently strong business models that are easy to understand.

He’s looking to buy great stocks when everyone else is too afraid to buy.  He looks for:

• Simple companies that are easy to understand
• Companies with predictable and proven earnings
• Companies that can be bought at a reasonable price
• Companies with “economic moat,” or a unique advantage over their competition. 

“I look for companies that have a business we understand, favorable long-term economics, able and trustworthy management and a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stock market purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone,” he noted.

Here is some additional detail on some of Buffett’s top criteria for spotting opportunities.

#1 – A Simple Business That He Understands

While not easily quantifiable, an investor must fully understand a business before investing in it.  If you have a problem explaining it to yourself in simple terms that even a child can understand, or if it’s just too complex, you may want to avoid the investment.

As the billionaire explains, “What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

#2 – Does the Company Have Predictable and Proven Earnings?

“If the company has operated with consistent earnings power and if the business is simple and understandable, Buffett believes he can determine its future earnings with a high degree of certainty. If he is unable to project with confidence what the future cash flows of a business will be, he will not attempt to value the company. He’ll simply pass,” as pointed out in The Warren Buffett Way.

#3 – Can the Stock Be Bought at a Reasonable Price?

Buffett’s goal has always been to identify stocks that can earn above-average returns and then buy them at prices below their current value.  In fact, as Buffett noted in 1988, “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised…”

#4 – Does the Company Have an Economic Moat?

If I handed you $1 billion, could you duplicate your favorite company?  Or, if I handed you $100 billion, could you dethrone Coca-Cola, Google, or Apple’s market share with the iPhone?

If you could not dethrone a company, that company has a strong moat. In 2026, that applies to many blue-chip companies, including: Coca-Cola (NYSE: KO), Harley Davidson (NYSE: HOG), Apple (NASDAQ: AAPL), Meta Platforms (NASDAQ: META), McDonald’s (NYSE: MCD), Disney (NYSE: DIS), Alphabet (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN).

To quantify how much economic moat a company may have, you can begin by testing the profit margins of the companies.  If a moat exists, the business should be able to raise prices without losing market share.  Otherwise, margins would decrease in a price war.

Why Warren Buffett’s Strategy Still Works for Modern Investors

Warren Buffett’s approach to investing isn’t complicated, but it does require discipline. By focusing on understandable businesses, consistent earnings, reasonable valuations, and durable competitive advantages, investors can filter out noise and zero in on high-quality opportunities.

In today’s fast-moving market, it’s easy to get distracted by hype-driven stocks or short-term trends. However, Buffett’s success shows that long-term wealth is often built by doing the opposite. That is staying patient and buying strong companies when they’re temporarily out of favor.

For investors willing to follow these principles, the goal isn’t to find the next hot stock. It’s about building a portfolio of reliable businesses that compound returns over time, just as Buffett has done for decades.

Disney reported strong headline numbers, particularly for its experience division. But analysts were expecting more.  

One area that investors want “more” clarity on is who Disney’s new CEO will be. It’s widely expected that Josh D’Amaro, the current Chairman of Disney Experiences, will be the successor to Bob Iger. However, the decision ultimately lies with the Disney board, which meets this week and may announce a decision at that time.  

Magic Has a Value 

I know that betting against Disney may be a fool’s errand. I was a big fan of the company and DIS stock for many years. But that’s when the company was firing on all cylinders. That hasn’t been the case over the last six years.  

Granted, not all of that is the company’s fault. It’s hard for companies to model for a global health crisis, followed by soaring inflation and the pressure that put on consumers. However, Disney has actually navigated that fairly well. The company’s theme parks were a popular destination for revenge travel, and as the company’s report shows, they continue to be.  

But as it turns out, investors seem to believe that even magic has a value. Look, it can be hard to hold two competing thoughts in your head. But Disney is a popular destination. And it’s also a really expensive vacation that may be out of reach for millions of Americans.  

Plus, a canary in the coal mine may be a decline in international visitors to its U.S. theme parks. To put that in context, this isn’t a situation that’s unique to Disney; many other theme parks are reporting the same problem. Nevertheless, it supports the idea that even the magic of Disney has a value.  

A “Good” Quarter the Market Didn’t Like 

To understand why DIS stock sold off, it helps to look at what Disney actually reported. Revenue grew 5% year-over-year to $26 billion, but total segment operating income fell 9% to $4.6 billion, and diluted EPS declined to $1.34 from $1.40 a year earlier, with adjusted EPS down 7% to $1.63. On the surface, that’s not a disaster, but it’s not the kind of earnings progression investors want to see this far into a turnaround.  

The Experiences segment, which includes Parks & Experiences and Consumer Products, delivered another record quarter with $10 billion in revenue and $3.3 billion in segment operating income, up 6% year-over-year. Domestic Parks & Experiences operating income grew 8%, supported by a 1% increase in attendance and 4% higher per-capita spending. That confirms the narrative that the parks are still doing the heavy lifting for the company. 

By contrast, the Entertainment segment showed the tension in the model. Revenue was up 7% to $11.6 billion, but operating income fell 35% to $1.1 billion as higher programming, production, and marketing costs more than offset higher subscription and affiliate fees and better theatrical revenue. That kind of margin compression is exactly what the market worries about when it looks at the future of Disney’s content engine. 

Streaming Is Progressing – But Still Under Scrutiny 

One area where Disney can credibly point to progress is streaming. Subscription video-on-demand (Disney+, Hulu, and Disney+ Hotstar, where applicable) grew revenue 11% year-over-year to $5.35 billion, with subscription fees up 13% and advertising and other revenue up 4%. Importantly, Entertainment SVOD operating income jumped 72% to $450 million, implying an 8.4% operating margin for the quarter. 

Management is guiding to SVOD operating income of about $500 million in the second quarter of fiscal 2026 and a 10% SVOD operating margin for the full year, with Entertainment segment operating income expected to grow at a double-digit rate for fiscal 2026, weighted to the back half. That suggests the streaming business is moving from a capital sink to a real profit center, which was a key pillar of the broader turnaround. 

The problem is that investors have grown more demanding. Streaming was a gold mine in 2020 and 2021 when the market rewarded subscriber growth at any cost, but it hasn’t been the same since. Now the bar is higher: streaming needs to be sustainably profitable and support the broader ecosystem rather than just being an expensive growth story. Entertainment segment operating income expected to grow at a double-digit rate for fiscal 2026, weighted to the back half. That suggests the streaming business is moving from a capital sink to a real profit center, which was a key pillar of the broader turnaround. 

Theme Parks: Strength Today, Questions Tomorrow 

Disney’s Experiences segment is the part of the business that looks closest to “classic Disney.” Domestic parks and experiences benefited from increased cruise capacity, higher room nights, and incremental attendance, including a favorable comparison against prior-year storm impacts. Per-capita spending growth shows that guests are still willing to pay up once they’re on property. 

At the same time, Disney is leaning heavily into Experiences as a growth driver. Capital expenditures jumped to $3 billion in the quarter from $2.5 billion a year earlier, driven largely by cruise ship expansion and new theme park attractions. Management expects high-single-digit operating income growth in Experiences for fiscal 2026, again weighted to the second half of the year. 

The underlying concern is that there are natural limits to how far pricing and spending can go, especially when a Disney trip is already a stretch for many families. Management also flagged “international visitation headwinds at our domestic parks” as a factor that will temper near-term Experiences operating income growth. That lines up with the idea that even for a beloved brand like Disney, the willingness to pay has boundaries. 

Balance Sheet, Cash Flow, and Capital Returns 

From a balance sheet and cash flow standpoint, Disney’s story is mixed but improving in some areas. The company generated $735 million of cash from operations in the quarter, down sharply from $3.2 billion a year earlier, primarily due to higher tax payments and increased content spending. Free cash flow was negative $2.3 billion after heavy capital expenditures. 

However, management still expects $19 billion of cash provided by operations for fiscal 2026 and is on track to repurchase $7 billion of stock this year. Net interest expense declined from the prior year as average debt balances fell and capitalized interest increased, suggesting the balance sheet is slowly becoming less of a drag. 

Those numbers help explain why analysts can look past a weak cash-flow quarter and still model an improving trajectory. They also give Disney some flexibility to keep investing in parks and content while returning capital to shareholders, which underpins the “value” argument for the stock. 

Where This Bearish Outlook for DIS Stock Could Be Wrong 

Analysts remain bullish on DIS stock, with a consensus Buy rating and a price target of $133.42, which would be a 27% increase from the stock’s price as of this writing. Supporting that outlook, at around 16x earnings, DIS stock is a value compared to the S&P 500 and its own historic value. 

Maybe all investors need is clarification on a new CEO. But that seems too easy. The company ventured into the streaming arena. That was a gold mine in 2020 and 2021 but hasn’t been the same since. 

Still, there are several ways the current bearish tone could prove too pessimistic. First, if the board names a credible successor quickly and outlines a clear handoff from Bob Iger, that could remove a major overhang and refocus attention on the fundamentals rather than the leadership soap opera. Second, if Disney executes on its guidance of double-digit Entertainment operating income growth, a 10% SVOD margin, and high-single-digit Experiences operating income growth, investors may have to revisit their assumptions about the durability of the business.