Netflix stock fell to its lowest level in two years after the company lowered its advertising forecast and issued fourth-quarter revenue guidance just below Wall Street’s expectations. The reaction was sharp, even though the streaming company’s latest quarter contained plenty of profitable details.
Shares dropped roughly 7% in premarket trading on Wednesday, briefly slipping below $64. They later recovered from an intraday low of $63.65 to $65.86 by 9:41 a.m. ET, reducing the decline to 4.1%. The stock remained down nearly 30% for the year and near its lowest point since August 2024.
Strong profits could not disguise slower growth
Netflix reported third-quarter revenue of $12.87 billion, up 11.8% from a year earlier. Operating income climbed 37% to $4.5 billion, while the operating margin expanded from 28.2% to 34.6%.
Diluted earnings rose 49% to 87 cents per share, beating the 82-cent consensus estimate cited by the Associated Press. Subscription revenue also exceeded Netflix’s own expectations, and co-CEO Greg Peters said churn improved year over year both globally and in the United States.
Those are not the usual numbers associated with a business in immediate distress. Investors were instead focused on whether Netflix can keep growing quickly enough to support its valuation.
For the fourth quarter, the company projected revenue of $13.44 billion, an increase of 11.5% year over year but slightly below Wall Street’s expectations. Netflix also reduced its expected 2026 free cash flow to $12 billion.
Restructuring costs will lower the fourth-quarter operating margin by 1.2 percentage points, according to the company’s filing. Netflix had already cut 1,000 jobs, about 6% of its workforce, ahead of the earnings report. Executives have presented those reductions as a way to redirect spending toward growth. Corporate reorganisations do tend to sound more uplifting when described as investment.
Why the advertising forecast disappointed investors
Netflix now expects advertising revenue of $2.7 billion in 2026, $300 million below its previous forecast. The company blamed a slower-than-planned rollout of “some ad product capabilities.”
Peters said Netflix was “a bit behind our aggressive target” because certain advertising products and partner integrations took longer than expected. He argued that accepting a short-term revenue hit was preferable to weakening the company’s strategy around first-party customer data.
The revised figure still represents expected advertising growth of more than 80% during 2026, according to MarketBeat. Yet it would account for only about 5% of Netflix’s projected $51.1 billion in full-year revenue. Advertising is growing rapidly, then, but it is not yet large enough to rescue the wider growth rate by itself.
Wedbush Securities analyst Alicia Reese said demand remained intact and argued that Netflix was still in control of its strategy. She pointed to stable pricing and churn, a growing live-events catalogue, licensing partnerships and add-on agreements. Wedbush maintained its “outperform” rating but cut its price target from $90 to $80.
Netflix is betting on another content overhaul
Co-CEO Ted Sarandos believes stronger execution in television and film remains the main answer to weaker audience engagement, particularly in the US. Netflix recently removed content chief Bela Bajaria and appointed Peter Rice as her replacement during a wider leadership overhaul.
Sarandos praised Bajaria’s work but added, “I know that we could do better.” He described Rice as “an at-scale, quality and volume operator” and acknowledged that the US business “is just not growing as fast as it could.”
Some analysts doubt that producing more premium shows, films and live events will fully address the problem. New Street Research analyst Dan Salmon argued that Netflix remains largely absent from mobile and short-form video, where YouTube, TikTok and Instagram command substantial attention, especially among younger viewers.
Salmon did not recommend copying YouTube’s user-generated content model. He did, however, call for “bold thinking” as YouTube gains viewing share across formats on connected televisions.
Pivotal Research Group analyst Jeff Wlodarczak raised a similar concern, warning that short-form entertainment is disrupting streaming in much the same way streaming weakened traditional pay television. He lowered his subscriber estimates, increased programming cost forecasts and cut his year-end 2026 price target by $5 to $65.
Netflix’s gaming ambitions offered little reassurance in the quarter. Games were barely mentioned in the earnings material, apart from a reference to the company’s August preview with Take-Two Interactive for Grand Theft Auto VI. A business once promoted as a potential extension of the subscription service now appears some distance from centre stage.
International partnerships offer another route
Netflix does have options beyond making another US hit or attempting to imitate a vertical-video feed. Peters said the company recorded its largest quarter of net additions in India through a bundle with Flipkart. Viewing through its integration with French broadcaster TF1 was also increasing each month.
Those distribution arrangements suggest Netflix can gain subscribers and viewing time through local partnerships rather than relying exclusively on expensive original programming. They also support the company’s broader shift toward a platform model built around licensing, bundles, live events and advertising.
MoffettNathanson analyst Robert Fishman remained optimistic about Netflix’s ability to make more money from its base of over 325 million global subscribers. His firm expects earnings per share of $3.85 in 2027, reduced from $4, followed by 21% growth to $4.65 in 2028. MoffettNathanson kept its “buy” rating while lowering its 12-month price target from $100 to $90.
The selloff therefore reflects concern about the next stage of growth rather than obvious weakness in the current business. Revenue, earnings, margins and subscription income all increased. The less comfortable question is whether advertising, international partnerships and a refreshed content operation can grow quickly enough as younger audiences spend more of their time elsewhere.
