Netflix reported third-quarter earnings that beat Wall Street expectations, but shares fell after the company lowered its fourth-quarter revenue and full-year advertising guidance.
Netflix shares declined in after-hours trading following the release of its third-quarter 2026 financial results. While the streaming giant reported earnings per share of 87 cents, beating the Wall Street estimate of 82 cents, the company issued reduced guidance for fourth-quarter revenue and full-year advertising sales.
According to Variety, Netflix posted third-quarter revenue of $12.87 billion, an increase of 11.8% year-over-year. This figure matched the average estimate from Wall Street analysts. Net income for the quarter was $3.66 billion, up from $2.55 billion in the same period a year earlier. The operating margin came in at 34.6%, exceeding the expected 33.2%.
Despite the strong quarterly performance, Deadline reported that the company lowered its fourth-quarter revenue guidance to $13.4 billion, citing the timing of expenses. Additionally, projected advertising revenue for 2026 was revised down to $2.7 billion from an earlier forecast of $3 billion. In its quarterly letter to shareholders, Netflix attributed the advertising reduction to "slightly slower than expected rollout of some ad product capabilities."
The earnings report follows a significant restructuring effort announced the previous week. Netflix laid off approximately 1,000 employees, representing about 6% of its workforce. The company also ousted several high-level executives, including Chief Content Officer Bela Bajaria, who was replaced by Peter Rice. Head of Film Dan Lin and his top lieutenant, Doug Belgrad, were also removed from their positions.
In the Q3 letter, co-CEOs Ted Sarandos and Greg Peters stated, "These organizational changes enable us to continue to aggressively invest in high impact areas to improve our service, and drive growth and innovation." The company projects a fourth-quarter operating margin of 26.0%, which includes a 120 basis point "negative impact" from costs associated with these layoffs.
Netflix has stopped reporting subscriber numbers every quarter but noted it had 325 million worldwide subscribers as of the end of 2025. The company faces scrutiny over slowing viewership growth. A viewing report for the first half of 2026 showed global hours viewed increased by only 2% year-over-year. Analysts at Jefferies estimated that average monthly viewing time per member globally fell from 66 hours in the first half of 2023 to about 49 hours in the first half of 2026.
Addressing investor concerns, the executives wrote, "Member response to our 2026 price increases is consistent with prior price changes and our expectations, an indicator that our engagement — which encompasses quantity, quality and variety of viewing — remains healthy and that we continue to deliver strong value to members."
The drop in Netflix stock reflects investor anxiety over slowing growth metrics and the uncertainty surrounding the company's strategic pivot. The combination of lowered advertising guidance, significant workforce reductions, and declining per-user engagement signals a challenging period for the streaming leader as it attempts to balance cost-cutting with the need to innovate and retain subscribers.
Sources
This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.
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