Netflix beat on profit, then cut its ad forecast. Investors noticed
Netflix's Q3 profit beat estimates on $12.87B revenue, but it trimmed its 2026 ad outlook to about $2.7B and guided Q4 below Wall Street.
The skim
- Netflix earned $3.66 billion, or 87 cents a share, in Q3 on revenue of $12.87 billion, up 12% and beating analysts' 82-cent forecast.
- But it cut its 2026 ad revenue outlook to about $2.7 billion from roughly $3 billion, and its Q4 profit forecast came in below Wall Street's.
- Revenue growth was the slowest in nearly three years, and the results land a week after Netflix cut about 1,000 jobs and shook up its programming leadership.
The numbers
According to Netflix's quarterly letter to shareholders, third-quarter revenue grew 11.8% year over year to $12.87 billion, in line with the company's own forecast. Operating margin jumped to 34.6% from 28.2% a year earlier, which Netflix said was ahead of plan mainly because of the timing of expenses. Net income rose to $3.66 billion from $2.55 billion.
For the fourth quarter, Netflix expects revenue of $13.44 billion, operating margin of 26% and earnings of 67 cents a share. Reuters reports analysts had expected 73 cents. For the full year, Netflix still expects $51.1 billion in revenue and a 31.5% operating margin.
The ad problem
The number that stung was advertising. Netflix lowered its 2026 ad revenue forecast to roughly $2.7 billion from about $3 billion, saying some ad product capabilities rolled out slightly slower than expected. "With Netflix under pressure to find alternative lines of revenue beyond subscriptions, it's concerning that the company lowered its estimate for its ad business," Emarketer analyst Ross Benes told the Associated Press. Shares fell after the report.
A company resetting
The results follow a turbulent week. Netflix laid off about 1,000 people, roughly 6% of its staff, replaced Chief Creative Officer Bela Bajaria and said film chief Dan Lin is leaving, Reuters reports. Shares had already fallen more than 40% over the past year before the report.
In the letter, Netflix said member response to its 2026 price increases matched expectations and that churn improved year over year. It's leaning on licensing more third-party content, like its TF1 partnership in France, plus live events: three NFL games around Thanksgiving Eve and Christmas Day and the Tyson Fury vs. Anthony Joshua fight are on the Q4 slate.
Why it matters
Netflix is still very profitable, but the growth story is getting harder to tell. Subscriptions and price increases carried the last few years; advertising was supposed to be the next engine, and it's arriving slower than promised. Meanwhile, Netflix says its audience is approaching one billion people, and it's competing for their time with YouTube and TikTok, not just other streamers.
Sources: Netflix 8-K and shareholder letter, Reuters, AP.
