Netflix's cheap multiple rests on a $2.8 billion breakup fee, Delta guided fuel to $4.30
Netflix's net income jumped 83% while operating income grew 18%, and a Warner Bros. Discovery breakup fee is the whole gap. Delta reports the June quarter before the open, having guided its margin to roughly half of last year's 13.2%. WD-40 printed $2.24 against a $1.58 estimate.
Netflix ($NFLX) grew net income 83% last quarter and operating income 18%. The entire gap is a $2.8 billion breakup fee that rolls off the comparison on July 16.
Today:
- Netflix’s earnings jump was a breakup fee
- TCS sold more AI and earned less money
- WD-40 beat big, then cut its margin guide
- Delta prints first, with fuel near double
- Q2 earnings measure the war in two directions
THE FILING
Netflix’s trailing earnings hold $2.8 billion it will never collect again.
Netflix reported Q1 2026 net income of $5.28B against $2.89B a year earlier. Diluted EPS was $1.23 versus $0.66. The line doing the work is interest and other income, which swung to $2.85B from $50.9M.
Warner Bros. Discovery terminated its merger agreement on February 27, 2026, and went to Paramount Skydance instead. Paramount Skydance paid the fee on Warner’s behalf. Netflix didn’t walk away. It got left.
What the filing actually shows:
- Operating income: $3.96B, a 32.3% margin against 31.7% a year ago
- Revenue: $12.25B, up 16% year over year
- Content spend: additions to content assets of $4.85B versus $3.55B
- Content obligations: $24.1B in total, with $11.8B due inside twelve months
- General and administrative: up 43%, on legal and deal costs
From the 10-Q: “PSKY, on behalf of WBD, paid a $2.8 billion termination fee owed to Netflix.”
Why it matters: Any trailing multiple on Netflix divides by a payment that can’t repeat. On July 16 the fee leaves the year-over-year comparison, and the streaming business carries the valuation alone. The Motley Fool reports a full-year operating margin guide near 31.5%, below what Netflix just printed. Content cash spend is growing more than twice as fast as revenue.
Reality check: Netflix bought 13,497,098 of its own shares in March at an average of $94.14. The stock printed $75.50 on July 7. Management’s most recent capital allocation is underwater by roughly a fifth.
THE RUN RATE
TCS sold AI at a $2.6 billion run rate. Its profit still fell.
Tata Consultancy Services reported June quarter revenue of $7,624M, flat sequentially and up 2.7% year over year. Net income fell to $1,460M from $1,493M a year earlier. EPS slipped to $0.40 from $0.41.
TCS booked over $30B of revenue last fiscal year and employed 593,798 people at quarter end. Its AI line is roughly the fastest growing thing it discloses.
The quarter, in five lines:
- AI: a $2.6B annualized run rate, up 13.6% in three months
- Company growth: up 0.4% sequentially in constant currency
- Operating margin: 24.0%, on operating income of $1,826M versus $1,927M last quarter
- Order book: $9.5B of contract value, including an $800M deal with Swedish bearings maker SKF
- Geography: North America is 48.3% of revenue, the Middle East and Africa 2.5%
Wipro ($WIT) says the quiet part in its SEC-filed annual report. FY26 operating margin was 16.30%, down 68 basis points from 16.98%. It blames client discretionary cuts, then names AI-driven productivity expectations as a source of pricing pressure.
Why it matters: Clients now expect the AI savings to arrive as a lower invoice. That turns an AI disclosure into a measure of what’s eating the business. Wipro closed its fiscal year at 187.6 rupees a share against 262.3 a year earlier. Its own filing warns the caution may persist.
The surprising bit: TCS is licensing Claude to 50,000 of its own staff. It also signed on as the first global systems integrator partner for Mistral Forge. It’s buying the tool that compresses the hours it bills.
THE EARNINGS
WD-40 printed $2.24 against a $1.58 consensus, then trimmed its margin guide.
WD-40 Company ($WDFC) reported fiscal third quarter net sales of $195.1M, up 24% from $156.9M. Diluted EPS came in at $2.24 against $1.54 a year ago. The two analysts who cover the stock had $1.58.
Steve Brass, WD-40 President and CEO, called the quarter exceptional. The composition of the beat is the part worth a second read.
Where the beat came from:
- Currency: about $7.3M of the sales gain was translation, so constant currency sales rose 20% to $187.8M
- Operating income: $40.3M, up 47% from $27.4M
- Pull-forward: EIMEA and Asia-Pacific customers bought ahead of announced price increases
- Nine months: net income of $67.985M against $69.753M a year earlier
The company says Asia-Pacific sales “benefited from advanced buying ahead of planned price increases later this year.”
Why it matters: Full-year gross margin guidance dropped to 54.5% to 55.5%. Forty of those basis points come from a homecare reclassification. Sixty come from costs that ran higher than management expected. Most of the offsetting pricing benefit doesn’t land until fiscal 2027. The fresh $100M buyback doesn’t start until September 1.
Contrarian read: two analysts follow this stock, so a beat that size says as much about the estimate as the business. The nine-month numbers already went backwards, because last year carried an $11.9M tax benefit from releasing an uncertain tax position.
THE CALL
Delta guided profit to halve. Consensus penciled in the top of Delta’s own band.
Delta Air Lines ($DAL) reports the June quarter before the open, with a call at 10 a.m. ET. The 7 analysts covering it sit at $1.50 of EPS. That’s the ceiling of Delta’s own guided band of $1.00 to $1.50. A year ago the adjusted number was $2.10.
Ed Bastian, Delta CEO, set the bar on April 8. “In the June quarter, we expect to lead the industry with $1 billion of profit.” Adjusted pre-tax income was $1,805M in the same quarter last year.
What Delta told you in April:
- Fuel: roughly $4.30 a gallon all-in, against $2.26 adjusted in the June 2025 quarter
- Margin: a 6% to 8% operating margin, against 13.2% adjusted a year earlier
- Costs: non-fuel unit costs grew 6% in the March quarter, and June was guided to match
- Balance sheet: adjusted net debt of $13,540M, down 20% from $16,876M
Why it matters: Delta is the first major US carrier to print the June quarter. Diversified revenue was 62% of its March quarter, and American Express remuneration alone cleared $2 billion, up 10%. That makes this a read on card spend and corporate travel budgets, not only on fares. The fuel curve under the whole guide is dated April 2. The beat or the miss is mostly a commodity outcome.
WEEK AHEAD
Aramco earned $33.6 billion in a quarter. ADNOC Gas guided its next one to $600 million at best.
Saudi Aramco posted Q1 2026 adjusted net income of $33.6B against $26.6B a year earlier. ADNOC Gas earned $1.1B in the same quarter, then guided Q2 net income down to $400M to $600M. One war, two ledgers.
The fighting started at the end of February, so Q2 is its first full quarter. The Strait of Hormuz closure is the mechanism. Aramco ran its East-West Pipeline at a maximum 7.0 million barrels a day to bypass the strait. ADNOC Gas lost Habshan processing capacity to security incidents on April 3 and April 8.
What the war costs elsewhere:
- Oil: $94 a barrel on June 10, down 15% across the ECB’s review window, still 32% above pre-war
- ECB: rates up 25 basis points on June 11, deposit facility to 2.25%
- Euro area: headline inflation 3.2% in May from 3.0% in April, energy inflation at 10.9%
- Gulf: banks face single-digit sequential profit declines, and Citi says Dubai residential sales sit far below pre-conflict levels
Tariq Qaqish is Deputy CEO at FH Capital. “The second quarter is going to reveal the real impact of the war.”
Why it matters: ADNOC’s guide assumes shipping normalizes before the quarter closes. On July 8, President Donald Trump said the interim agreement with Iran was over. Europe’s rate path stays shut while the strait does. The ECB has already flagged asset-quality risk in energy and trade-sensitive sectors.
The volume angle: the windfall is price, not barrels. Aramco’s free cash flow fell to $18.6B from $19.2B even as adjusted net income rose. ADNOC Gas forecasts domestic gas sales down about 19% year over year. Reopen the strait and the price leg reverses, while the lost volumes stay lost.
That’s the brief.
Tomorrow we do it again.
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