Netflix Q3 profit jumps 44%, but weak advertising outlook sends shares lower

Netflix’s third-quarter profit rose 44% year-on-year and revenue jumped 11.8% (lowest rate of increase in 3 years), but its weaker-than-expected fourth-quarter earnings outlook and a reduction in its full-year advertising revenue forecast triggered a fresh sell-off in its shares on Tuesday, highlighting the pressure to sustain growth as it scales up its advertising business.

Netflix reduced its advertising forecast for 2026 to roughly $2.7 billion, down from about $3 billion. Some ad product capabilities rolled out slightly slower than expected, executives said in their quarterly letter to shareholders.

Shares fell nearly 6% to $64.66 in after-hours trading on October 20. The stock had already lost more than 25% of its value over the preceding year, reflecting concerns about engagement growth, competition and the sustainability of its premium valuation. 

"I know that we could do better," Co-CEO Ted Sarandos said in a post-earnings video call. "Now we've seen an opportunity to take our slate to the next level."

Third-quarter revenue rose 11.8% to $12.87 billion, in line with Wall Street forecasts, but the lowest rate of increase in nearly ⁠three years. The company forecast fourth-quarter net income of $2.79 billion and EPS of 67 cents, below the average analyst forecast of $3.07 billion and 73 cents.

Sarandos said the company plans to focus on its core business of producing quality TV shows and movies to make Netflix a must-have service, and the recent executive shakeup was a step toward that goal. In its earnings report, Netflix said it would continue to expand its offerings through licensing more third-party ‌content.

Q4 guidance under pressure

Netflix expects fourth-quarter revenue of $13.44 billion, up 11.5% year-on-year, but forecasts net income of $2.79 billion and earnings per share of 67 cents. Both figures fall short of analysts’ expectations of $3.07 billion and 73 cents, respectively. The company also projects an operating margin of 26%, down from 34.6% in Q3. 

For the full year, Netflix maintained its revenue guidance of $51.1 billion, representing approximately 13% growth, and an operating margin target of 31.5%. However, it lowered its 2026 advertising revenue forecast to approximately $2.7 billion from $3 billion, citing delays in rolling out advertising products and partner integrations. Despite the revision, the advertising business is expected to grow more than 80% this year, according to co-CEO Greg Peters. 

For advertisers and media buyers, the revision highlights the difference between growing demand for streaming inventory and building the technology, partnerships and formats needed to monetise it at scale.

Sarandos calls for stronger US content execution

Sarandos said Netflix’s underlying strategy remained unchanged, centred on exclusive, professionally produced series, films and live events, supported by licensing and global distribution.

“Our business and our business flywheel are working. There’s no need for a fundamental shift in the strategy. We do need better execution in the U.S.,” Sarandos said. 

Notably, Netflix has posted monthly subscriber losses in the US throughout 2026, with no net additions reported ⁠for any month up to September, data from analytics firm Antenna showed, as reported by Reuters. Antenna tracks US subscription purchases via sources like credit card transactions, but excludes subscriptions acquired through wholesale bundles.

Sarandos acknowledged that the company had delivered “some really solid doubles and triples this year”, but said it needed more breakout hits that could travel internationally. “I know that we could do better,” he added, pointing to an opportunity to take the content slate to the next level. 

Sarandos also highlighted the importance of creative talent, saying incoming chief content officer Peter Rice understood talent relations in a competitive market. Netflix recently laid off around 1,000 employees, or 6% of its workforce, and announced leadership changes involving content chief Bela Bajaria and film chief Dan Lin.

Live sports and events remain central to the growth strategy. Sarandos said such programming can attract new members, support advertising revenue and increase value for existing subscribers. Yet competition from YouTube and TikTok, alongside questions over viewing-hour growth, puts greater pressure on Netflix to deliver stronger engagement.

The challenge now is to convert its global reach and content investments into faster growth, while improving advertising monetisation and maintaining profitability.

Netflix viewing hours rise 24% in India

India is the example Netflix chose. View hours there grew 24% year over year in the third quarter, led by Lock Upp, its first daily reality series, according to the letter. Netflix recorded its largest quarter of paid net additions in India, and revenue there grew about 18% on a currency-neutral basis.