Netflix Stock Falls on Weak Q3 Forecast
Netflix stock fell more than 9% in pre-market trading after the streaming giant released a weaker-than-expected outlook for the third quarter. This ended up overshadowing an otherwise solid second-quarter earnings report.
Netflix stock price (Source: Google Finance)
Investors reacted negatively after the company's revenue and earnings guidance came in below Wall Street expectations.
The company reported second-quarter revenue of $12.56 billion, up 13.4% from a year earlier but just below analysts' expectations of $12.58 billion. Revenue growth also slowed from the 16.2% that was recorded in the previous quarter. Earnings per share came in at $0.80, slightly ahead of the consensus estimate of $0.79 and above the $0.73 reported during the same period last year.
Despite the earnings beat, Netflix's forward guidance disappointed investors. The company expects third-quarter revenue of approximately $12.86 billion, which is below Wall Street's forecast of $13 billion. It also projected earnings per share of $0.82, compared with analyst expectations of $0.84. The softer outlook triggered a sharp selloff in Netflix stock, which has already declined around 40% over the past 12 months.
Looking ahead, Netflix held onto its full-year 2026 revenue forecast of between $51 billion and $51.4 billion. This is largely in line with its previous guidance of $50.7 billion to $51.7 billion. Management also acknowledged that the entertainment industry is highly competitive but said the company is focused on delivering better entertainment value, improving its technology platform, and expanding monetization opportunities.
Regionally, Netflix's largest market in the United States and Canada recorded 10% year-over-year revenue growth during the second quarter. Although impressive, this was still slower growth than the previous four quarters. Latin America was the only major region where growth accelerated compared with the prior quarter.
(Source: Netflix)
Advertising is an important growth driver for the company. Netflix now expects generating $3 billion in advertising revenue during 2026 as it expands its lower-priced ad-supported subscription tier. The company also pointed out strong advertiser demand for its growing portfolio of live sports and entertainment programming, including the Women's World Cup, football, baseball, and wrestling events.
Management is still optimistic about the company's long-term growth potential. Chief Financial Officer Spencer Neumann told analysts that Netflix reached fewer than 45% of its total addressable households globally and currently accounts for only around 5% of total television viewing. The company believes these figures leave a lot of room for future subscriber growth and engagement.
