Key takeaways
- Netflix stock plunged nearly 6% in after-hours trading despite beating Q3 2026 earnings expectations
- Netflix slashed its 2026 advertising revenue forecast by $300 million to $2.7 billion
- Netflix reported a 44% surge in quarterly profits, but layoffs and leadership changes raised concerns about its future growth
Netflix shares plunged by almost 6% in after-hours trading on Tuesday, after the streaming giant reported better-than-expected third-quarter 2026 earnings but disappointed investors with weaker guidance and a $300 million reduction to its advertising revenue forecast.
The selloff came despite an increase in quarterly profits, mainly due to concerns about slowing growth, weakening viewer engagement and intensifying competition.
Netflix Q3 Earnings Beat Wall Street Expectations
Netflix reported third-quarter revenue of $12.87 billion, which represented an 11.8% increase from the same period last year. However, this was also the company's slowest quarterly revenue growth in nearly three years.
(Source: Netflix)
Net income surged 44% year-over-year to $3.66 billion, while earnings per share reached $0.87, exceeding analysts' expectations of $0.82. Operating income climbed to $4.46 billion, with operating margins expanding to 34.6% from 28.2% a year earlier.
Despite the earnings beat, investors focused on signs that Netflix's growth engine was losing momentum.
Netflix Stock Falls as Advertising Outlook Disappoints
One of the biggest disappointments was Netflix's decision to slash its full-year advertising revenue forecast from $3 billion to $2.7 billion. The company attributed the reduction to a slower-than-expected rollout of advertising products. This quickly raised questions about a business segment that has become very important to its long-term growth strategy.
Netflix also projected fourth-quarter revenue of $13.44 billion, below Wall Street's expectations of approximately $13.51 billion. Earnings per share were forecast at $0.67, missing analysts' estimates of $0.73.
Shares subsequently dropped by close to 6% in extended trading, which only added to losses that already wiped more than 25% off Netflix's value over the past year.
Netflix CEO Admits Company Needs to Improve
The disappointing outlook followed a major restructuring at Netflix, including approximately 1,000 layoffs. The company also replaced chief content officer Bela Bajaria with former Disney executive Peter Rice as part of efforts to revitalize its programming strategy.
Co-CEO Ted Sarandos acknowledged the challenges facing Netflix, and told investors that the company "could do better."
Management is now focused on improving content quality and viewer engagement as Netflix faces growing competition from Disney+, Amazon Prime Video and YouTube.
