Netflix Beats Q3 Profit Estimates but Cuts 2026 Ad Forecast to $2.7 Billion; Shares Fall

Netflix reported third-quarter results on Tuesday, Oct. 20, that beat Wall Street's profit forecast and matched its revenue estimate, but the company also lowered its 2026 advertising outlook and narrowed its full-year revenue forecast to the low end of its earlier range. The stock fell in extended trading Tuesday and was down about 7% early Wednesday, Oct. 21, according to CNBC.

The report was the streamer's first since it laid off about 1,000 employees, roughly 6% of its workforce, and replaced chief content officer Bela Bajaria with former Disney and Fox executive Peter Rice the previous week.

The quarter by the numbers

For the three months ended Sept. 30, Netflix posted revenue of $12.87 billion, up about 12% from a year earlier, and earnings of 87 cents per share, compared with the 82 cents analysts polled by LSEG expected, CNBC reported. Net income rose to $3.66 billion from $2.55 billion in the same quarter of 2025. The company said revenue growth was driven by membership gains, the subscription price increases it put in place in March and higher advertising revenue.

In its quarterly letter to shareholders, published on its investor relations site, Netflix reported operating income of about $4.5 billion, up 37% year over year, and an operating margin of 34.6%, compared with 28.2% a year earlier. The company said the margin came in ahead of its own forecast mainly because of the timing of expenses.

Guidance and advertising

Netflix forecast fourth-quarter revenue of $13.44 billion and an operating margin of 26.0%. According to CNBC, the company expects the recent headcount reductions to lower fourth-quarter operating margin by about 120 basis points. For all of 2026, Netflix now projects revenue of $51.1 billion, a 13% increase, which CNBC noted sits at the low end of the $51 billion to $51.4 billion range the company gave last quarter and below the $51.2 billion analysts expected, according to LSEG.

The company also cut its 2026 advertising revenue forecast to about $2.7 billion from roughly $3 billion. The shareholder letter attributed the reduction to a "slightly slower than expected rollout of some ad product capabilities," Deadline reported.

On the earnings call, co-CEO Greg Peters said, "Our ads business has delivered really impressive growth since we've launched, and we do see a long road of continued growth ahead of us." He added that "we are currently a bit behind our aggressive target for the year."

Viewing growth and the leadership change

The letter addressed questions about engagement directly. "We know there's some investor concern about our view hours growth," it said, adding that member response to price increases indicated engagement remained healthy. "But we do seek to accelerate growth in view hours as well," the letter said, as quoted by Deadline. Deadline also reported that Netflix shares had fallen about 40% over the past year.

Speaking with analysts, Peters pointed to subscriber retention. "We've got healthy retention in every region," he said, according to Variety, which reported that churn improved both globally and in the U.S. during the quarter. Peters said view hours in India grew 24% on an absolute basis in the third quarter.

Co-CEO Ted Sarandos said U.S. growth had been slower than the company wanted and described this year's slate in baseball terms. "We had some really solid doubles and triples this year, but the other territories count on some of those titles being home runs so that they'll travel around the world," he said, as quoted by Variety. He said Rice "brings expertise in both art and commerce, television and film."

Netflix named Rice chief content officer on Oct. 15. Variety reported at the time that Bajaria was leaving after 10 years at the company, and that film vice president Doug Belgrad was among those let go in the restructuring. Variety later reported that film chief Dan Lin was also ousted as part of the shake-up. Rice previously served as chairman of Walt Disney Television and chairman of general entertainment for the Walt Disney Company.

Chief financial officer Spencer Neumann told analysts the business does not rely on a single hit. "We're not overly dependent on any kind of one title, nor outsized performance by any one region to deliver healthy growth," he said, according to Variety.

Analyst reaction

Several Wall Street firms kept positive ratings after the report, CNBC reported Wednesday. Bank of America analyst Jessica Reif Ehrlich, who rates the stock a buy with a $90 price target, wrote, "At below 20x EPS, we view valuation as undemanding for a company with more than 300 million paying subscribers globally." She also cited about $4.8 billion in third-quarter share buybacks.

Barclays analyst Kannan Venkateshwar wrote, "We believe the market's reaction was overly punitive, although directionally fair given the guidance cut." CNBC reported that JPMorgan, Morgan Stanley, BMO, Goldman Sachs and Jefferies also maintained positive ratings on the shares.

Netflix said it expects to close 2026 with a fourth-quarter slate that includes The Further Mis-Adventures of Cliff Booth, the limited series The Murder of JonBenét Ramsey, the series finale of Emily in Paris, NFL games on Thanksgiving Eve and Christmas Day, and the Tyson Fury vs. Anthony Joshua fight.