Netflix Beats, Then Bleeds: Soft Outlook Sinks the Stock

Netflix Beats, Then Bleeds: Soft Outlook Sinks the Stock

Profit beat overshadowed by a 5% after-hours slide

Netflix reported third-quarter results on Oct. 20 that beat on the bottom line but failed to reassure Wall Street. Revenue was $12.87 billion, up 11.8% year over year and roughly in line with forecasts. Earnings per share came in at $0.87, ahead of the $0.82 consensus tracked by LSEG. Net income was $3.66 billion, up from $2.55 billion a year earlier, while operating income rose 37% to $4.46 billion and operating margin reached 34.6%, above the 33.2% expected. The stock fell more than 5% in after-hours trading to $68.69, at one point down as much as 7%. Shares are down about 25% so far in 2026 and roughly 40% over the past year, close to the 52-week low of $65.08.

Fourth-quarter guidance points to a fourth straight slowdown

The outlook did the damage. Netflix guided fourth-quarter revenue to about $13.44 billion, short of the $13.51 billion consensus, and forecast fourth-quarter net income of $2.79 billion and EPS of 67 cents, below average estimates of $3.07 billion and 73 cents. It projected a fourth-quarter operating margin of 26%, weighed down by severance and restructuring costs from recent job cuts. Revenue growth has now decelerated from 13.4% in the second quarter to 11.8% in the third, with roughly 11.5% expected in the fourth — a fourth consecutive slowdown and the weakest pace in nearly three years, versus 17% growth a year ago. Bloomberg Intelligence analyst Geetha Ranganathan said engagement worries were now "bleeding into the revenue growth numbers."

Sarandos admits the U.S. slate must improve

Co-CEO Ted Sarandos conceded on the earnings call that execution, especially in the United States, has fallen short. He said the company hit "some really solid doubles and triples this year" but lacked the big U.S. home runs that travel worldwide, adding: "There is a lot to be excited about, but I know that we could do better." He stressed there was "no need for a fundamental shift in strategy" but "better execution in the U.S." Co-CEO Greg Peters called U.S. engagement "solid" and said improvement was "our upside." The comments followed a layoff of about 1,000 employees, roughly 6% of staff, and the ouster of content chief Bela Bajaria, replaced by former Disney executive Peter Rice, who starts Oct. 26.

Ad forecast cut by $300 million as analysts slash targets

Netflix cut its full-year 2026 advertising revenue forecast to about $2.7 billion from $3 billion, a $300 million or 10% reduction blamed on a "slightly slower than expected rollout of some ad product capabilities." It lowered the 2026 total revenue outlook by about $100 million at the midpoint on the ad shortfall while effectively raising the core subscription outlook by about $200 million. Analysts moved quickly: Guggenheim cut its price target to $78, about 20.5 times its 2027 EPS estimate, lowering 2027 revenue to $56.8 billion from $57.1 billion and EPS to $3.80 from $3.89; Oppenheimer cut to $80 from $85 with an Outperform rating, citing soft ad guidance and low-single-digit viewership growth; JPMorgan also trimmed its target and 2027-2028 estimates.

Warner Bros. loss still haunts a stock with no acquisition fix

Skepticism dates back to Netflix's failed pursuit of Warner Bros. Discovery's studio and streaming assets earlier this year, which went to David Ellison-led Skydance. Since then investors have doubted the standalone growth story, with competition from free platforms such as YouTube weighing on engagement. KeyBanc had urged four remedies — more content spending, product changes, operating-cost cuts and even a dividend Netflix has never paid. What comes next is measurable: whether Rice delivers buzzy U.S. hits, whether ad tools catch up to the $2.7 billion target, and whether the fourth quarter delivers $13.4 billion in revenue at a 26% margin. Another miss would deepen a selloff that has already erased two-fifths of the stock's value in a year.