Netflix shares fell approximately 4% in after-hours trading on Tuesday, as the streaming giant's fourth-quarter revenue forecast came in below Wall Street expectations, overshadowing a third-quarter earnings beat. The company reported revenue of $12.9 billion for the quarter, up 12% year-over-year, matching analyst estimates. Earnings per share reached 87 cents, surpassing the consensus of 82 cents, while net income surged 43.5% to $3.66 billion.
However, the company guided fourth-quarter revenue to $13.4 billion, short of the $13.5 billion analysts had projected. For the full year 2026, Netflix expects revenue of $51.1 billion, representing 13% growth, slightly below the midpoint of its prior 13% to 14% range. This marks the fourth consecutive quarter of slowing revenue growth, with the pace decelerating from 17.6% in Q4 2025 to a projected 11.5% in the final quarter of 2026.
Advertising revenue disappoints
Netflix attributed the advertising shortfall to a slower-than-expected rollout of certain advertiser products. The company now expects advertising revenue of $2.7 billion for the year, down from its previous projection of approximately $3 billion. Subscription revenue growth, however, exceeded expectations, according to the company.
Despite the revenue concerns, Netflix's operating margin improved to 34.6% in the third quarter, up from 28.2% a year earlier. Free cash flow also rose to $2.9 billion from $2.66 billion in the same period last year. These improvements, however, have not alleviated investor worries about the company's ability to sustain growth.
Leadership shake-up amid content quality concerns
In a bid to bolster its content offering, Netflix has made significant leadership changes. Over the past week, the company cut approximately 6% of its workforce, or around 1,000 positions, and replaced Chief Content Officer Bela Bajaria with Peter Rice, a veteran executive from Disney and 21st Century Fox. Film chief Dan Lin was also removed. These moves come as Netflix faces criticism over a lack of major hits, with its Emmy Awards haul falling to a 10-year low in 2026 and viewing activity showing signs of slowing.
Netflix remains the leading global streaming platform with over 325 million subscribers, but its share of US television viewing stands at 7.8%, compared with YouTube's 14%, according to Nielsen. Data cited by The Wall Street Journal indicates that Netflix viewers watched only 2% more programming in the first half of 2026 than a year earlier.
Stock under pressure
Netflix shares have been under pressure following its unsuccessful bid to acquire Warner Bros. Discovery's studios and HBO Max. The stock has fallen approximately 25% this year and more than 40% over the past year. Investor focus is now on the company's ability to increase viewing hours and generate growth without a major acquisition.
Customer retention remains relatively strong, with research firm Antenna estimating a churn rate of around 2% in September, the lowest in the industry. Netflix also noted that customer responses to price increases this year were in line with expectations, indicating healthy engagement. Nevertheless, the weaker advertising outlook and slowing revenue growth have added to concerns about its near-term performance.
Netflix is expanding into live sports, podcasts, and video games, while adding third-party content, in an effort to boost engagement amid intensifying competition. The company's improving margins and cash flow provide some support, but investors will be watching whether its content strategy and new entertainment offerings can translate into stronger viewing activity and sustained growth.
This article is for informational purposes only and does not constitute financial advice.
