Netflix tops profit estimates, cuts 2026 ad forecast to $2.7 billion; shares drop about 6% after hours

Netflix reported third-quarter results today, Oct. 20, that beat on profit and landed in line on revenue. Then it handed investors weaker guidance. Shares were down about 6% in extended trading after the regular session closed.

The quarter

Revenue rose 11.8% to $12.87 billion, matching analyst estimates. The company credited membership growth and a subscription price increase that took effect in March. Netflix said the response to the hikes was consistent with prior changes and with its expectations.

Earnings came in at 87 cents a share against estimates of 82 cents. Net income was $3.66 billion, up from $2.55 billion a year earlier. Netflix said part of that jump came from the timing of expenses, and operating margin was about 34%.

It was the slowest top-line growth in three years, and the third straight quarter of deceleration.

The guidance

Netflix guided fourth-quarter revenue to $13.44 billion, up more than 11%. Analysts had expected $13.51 billion. It also told investors to expect fourth-quarter earnings of 67 cents a share, below the 73 cents Wall Street projected.

For the full year, Netflix narrowed its revenue forecast to $51.1 billion, 13% growth. That sits at the low end of the $51 billion to $51.4 billion range it gave in July, and under the $51.2 billion analysts were expecting, according to LSEG.

The sharper cut was in advertising. Netflix lowered its 2026 ad revenue forecast from $3 billion to $2.7 billion. The company blamed a "slightly slower than expected rollout of some ad product capabilities." That points to a technical delay, not weak advertiser demand.

At $2.7 billion, advertising is roughly 5% of projected 2026 revenue. Subscriptions still carry the business. But ads were pitched as the growth lever as the subscription base matures, especially in the U.S. and Canada, and Netflix no longer reports quarterly subscriber counts.

"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," said Ross Benes, an analyst at Emarketer.

Forrester's Mike Proulx was blunter on the overall picture. "While Netflix is growing, the pace of that growth is slowing," he said. "That's a wake-up call for the company that once defined the streaming market and is now in need of growth reacceleration."

Layoffs and a new content chief

The results landed days after Netflix said it was cutting about 6% of its workforce, roughly 1,000 people. That is its biggest round of layoffs since 2022. Netflix told investors the reductions will hit fourth-quarter operating margin by about 120 basis points.

Chief Content Officer Bela Bajaria is leaving the role after more than three years. Peter Rice, a former Fox and Disney executive who ran Disney's TV division including ABC and FX, is taking over. Netflix said Monday that film chief Dan Lin is also out. The company has not named a successor, and Rice will oversee film in the meantime.

Co-CEO Greg Peters framed the shake-up as a push for quality. "It's our goal to go from very good to great," he said on the earnings call.

Engagement and the stock

Netflix's own shareholder letter acknowledged the worry. "We know there's some investor concern about our view hours growth," it said. The company argued that engagement, which it defined as "quantity, quality and variety of viewing," "remains healthy" and that members continue to get strong value.

The company said it aims to speed up growth in view hours through a three-step strategy centered on delivering more entertainment value to members.

Competition is the backdrop. Co-CEO Ted Sarandos said earlier this month at Bloomberg's Screentime event, "Overall, we're not growing as fast as I want us to, and we're working on making that move faster." He also said Netflix is "not in the UGC business," but in professionally produced content, a pointed contrast with YouTube.

The stock came into the report down more than 44% over the prior year. After the July report, when revenue missed and guidance was trimmed, shares fell more than 8%.

What comes next

The next test is the fourth-quarter report, where Netflix has guided to $13.44 billion in revenue and 67 cents a share. By then investors will see whether the ad rollout delays have cleared, how much the layoffs cost in margin, and whether Rice has named a film chief.