Cautious Ahead Netflix Q1 Earnings: History of Sell-Offs and Gloomy Outlook May Damp Broader Tech Sector
2min read After a turbulent week driven by Trump's reciprocal tariff push, which intensified market volatility, investors may now need to refocus on fundamentals. This week, tsmc and netflix are set to officially kick off the Q1 tech earnings season. While both tech giants are likely to beat expectations, guidance will matter more, as the unfolding tariff war begins to weigh on corporate strategies. Netflix, in particular, could face more pressure—its history of sharp sell-offs, lofty valuation, and slower-than-expected ad monetization all suggest a bumpier road ahead for tech.
The streaming giant shares typically decline after Q1 earnings. Over the past five years, the company's stock has dropped the next day 100% of the time, with an average fall of 11.5%, a minimum single-day drop of 3%, and a maximum crash of 35%.
The triggers for these sell-offs vary—ranging from weaker-than-expected guidance (Q1 2024), revenue miss(Q1 2023), or even subscriber disappointments (Q1 2022). These examples highlight how volatile Netflix earnings can be, especially for an industry vulnerable to macro uncertainties.
Investor sentiment, however, remains surprisingly optimistic. Netflix shares have gained over 3% year-to-date, outperforming the S&P 500's nearly 9% drop and the Nasdaq 100's 11% slide. The prevailing belief is that demand for streaming services will remain resilient even as tariffs rise—though that assumption may be tested. Notably, Netflix's P/E ratio has surged to a 10-month high, signaling that the stock is not cheap. When combined with rising macro risks and weakening consumer confidence, this poses a red flag.
Turning back to fundamentals, the consensus is that Netflix will report earnings of $5.70 per share on revenue of $10.5 billion, reflecting year-over-year growth of 8% in EPS and 12% in revenue—the slowest pace in seven quarters. Since the company has stopped reporting paid membership numbers starting this year, investors will likely focus more on monetization metrics.
Two key factors to watch are how the ad-supported tier continues to shape revenue and whether advertisers begin to scale back spending amid rising tariff risks. As of November 2024, Netflix reported 70 million users on its ad-supported plan—roughly one-fourth of its total 283 million memberships—and a 75% increase since May. It's also worth noting that Netflix added a record 19 million subscribers last quarter, pushing paid memberships to 302 million. However, the rapid growth in ad-tier users, combined with slowing overall growth, suggests some users may be downgrading from standard to lower-priced ad-supported plans, implying a 56% price saving. If this trend continues and ad spending slows, revenue growth could decelerate further. 
Netflix also began cracking down on password sharing in March 2023, pairing the effort with the launch of its ad-supported tier to convert freeloaders into paying customers. But after nearly two years, much of the subscriber boost appears to have come from those previously sharing credentials. That may imply slower growth ahead, especially with no blockbuster content releases recently.
MoffettNathanson analysts raised a similar concern in early March, noting that most of the new growth was likely driven by users converting from shared accounts, which may not be sustainable long-term.
For those choosing the ad-supported plan, the threat of rising costs—exacerbated by looming tariffs—could prompt more cautious behavior. This price-sensitive customer segment is particularly vulnerable to economic uncertainty, casting further doubt on Netflix's earnings outlook.
As Netflix's advertising segment expands, the company faces the same macro headwinds as other ad-dependent tech firms. If tariffs cause advertisers to pull back spending, Netflix could suffer just as Google and Meta have, with both seeing year-to-date stock declines of 8% and 17%, respectively. Increased competition for a shrinking ad pool means Netflix must contend with far more established platforms—while operating in a potentially smaller addressable market.
In short, the rising proportion of ad-supported users and potential cutbacks in advertising budgets could place pressure on Netflix's forward outlook. Given the current volatile environment, elevated valuation, and investor optimism, a disappointing quarter could be enough to send Netflix—and the broader tech sector—into another leg lower.