Netflix's lower advertising forecast and slower expected fourth-quarter revenue growth weighed on its shares Wednesday, with the stock down nearly 5% in afternoon U.S. trading despite higher third-quarter profit, Reuters reported. The reported share move came before the market close.
In its Oct. 20 shareholder letter filed with the SEC, Netflix cut its 2026 advertising revenue forecast to about $2.7 billion from its previous estimate of about $3 billion. The company said it had taken longer than planned to bring some advertising tools to market. Subscription revenue growth, meanwhile, exceeded its expectations.
Netflix expects fourth-quarter revenue of $13.442 billion, an 11.5% increase from a year earlier. Its year-over-year revenue growth rate was 17.6%, 16.2%, 13.4% and 11.8% in the preceding four quarters. The new forecast would continue that sequence of declining growth rates.
The reported third quarter was more profitable than the same period last year. Revenue rose 11.8% to $12.874 billion in the three months ended Sept. 30. Net income increased to $3.664 billion from $2.547 billion, while diluted earnings rose to $0.87 per share from $0.59.
For the fourth quarter, Netflix projects net income of $2.787 billion and diluted earnings of $0.67 per share. It expects recent job cuts to reduce the quarter's operating margin by about 1.2 percentage points. The company forecast full-year revenue of $51.1 billion and maintained its 31.5% operating-margin forecast.
Netflix has also acknowledged investor concern about viewing-hours growth. Its July shareholder letter reported a 2% year-over-year increase in viewing hours during the first half of 2026. The company plans to report the metric annually beginning in the first quarter of 2027.
In March 2027, Netflix plans to begin bringing its advertising tier to 15 additional countries over the course of the year.
