Netflix Beats on EPS but Weak Guidance and an Ad-Revenue Cut Send Shares to a Two-Year Low
A record buyback and resilient subscriber trends couldn’t offset a soft Q4 revenue guide and a lowered full-year ad-revenue forecast.
What Happened
Netflix reported third-quarter 2026 earnings per share of $0.87, beating the Street consensus of roughly $0.82, on revenue of $12.87 billion that came in essentially in line with the roughly $12.88 billion analysts expected. Net income rose 44% year over year to $3.66 billion, and operating margin expanded to 34.6% from about 28.2% a year earlier, helped partly by favorable expense timing. By region, UCAN revenue grew 11% to $5.63 billion, EMEA rose 11% to $4.11 billion, LATAM jumped 17% to $1.60 billion, and APAC climbed 12% to $1.54 billion, with management highlighting a record quarter of paid net additions in India. The company also repurchased a record $4.8 billion of stock during the quarter — its largest buyback ever — leaving about $22.3 billion still authorized.
The trouble was guidance, not the quarter itself. Netflix guided fourth-quarter revenue to about $13.44 billion, below the roughly $13.52 billion Street consensus, and fourth-quarter EPS to $0.67, well short of the $0.73 analysts had modeled. Full-year 2026 revenue guidance narrowed to about $51.1 billion, versus a prior range of $51.0-51.4 billion and below the roughly $51.2 billion consensus. Management also lowered its 2026 advertising revenue outlook to roughly $2.7 billion from an earlier forecast near $3 billion, with co-CEO Greg Peters acknowledging the ad business isn’t growing as fast as the company had targeted because of a slower-than-expected rollout of some ad-product capabilities. The guidance also reflects roughly 120 basis points of margin impact from the approximately 6% workforce reduction — the company’s largest since 2022 — that Netflix announced just days before the report.
Analyst Reaction
Shares fell roughly 6-7% in the hours after the report and into Wednesday trading, touching their lowest levels in about two years near $64-65. Several analysts cut price targets even while maintaining bullish ratings, pointing to the guidance miss rather than any deterioration in the underlying subscriber business. Bank of America’s Jessica Reif Ehrlich kept a Buy rating but cut her price target to $90 from $105. Morgan Stanley’s Sean Diffley maintained Overweight while trimming his target to $77 from $80. Evercore ISI’s Mark Mahaney reaffirmed a Buy rating despite cutting his target 18%, to $90 from $110, still implying meaningful upside from current levels. Rosenblatt’s Barton Crockett kept a Neutral rating and cut his target to $71 from $75, while Needham’s Laura Martin downgraded the stock to Hold from Buy. Not every target moved: KeyBanc’s Justin Patterson affirmed his $85 target and Buy rating unchanged. The split underscores a debate playing out across the Street: whether the ad-revenue and margin softness is a temporary rollout delay, as management argues, or a sign that Netflix’s newer growth levers are maturing more slowly than the stock’s premium valuation assumes.
Why It Matters
Netflix’s report was the opening act of Wall Street’s biggest earnings week of the quarter, and its weak reception set a cautious tone heading into Wednesday’s reports from Tesla and Meta Platforms — see our full Netflix earnings preview for how expectations compared going in. The ad-revenue shortfall is also a read-through for the broader streaming and digital-ad landscape that FactSheets.com has tracked all year, and the margin hit from Netflix’s layoffs echoes similar headcount-driven cost actions elsewhere in media. For more on this week’s other major reports, see our Earnings coverage and the Stock Fact Sheets hub.
- Netflix (NFLX) Earnings Preview
- Wall Street’s Biggest Earnings Week of the Quarter
- Tesla (TSLA) Earnings Preview
- Meta Platforms (META) Earnings Preview
- NFLX (Netflix) Stock Fact Sheet
- Stock Fact Sheets Hub
This article is for informational purposes only and does not constitute investment advice. Analyst estimates, price targets, and market figures are as of the date noted above and subject to change; consult a licensed financial advisor before making investment decisions.
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