Netflix issued a weak forecast and scaled back its advertising plans. What is Wall Street saying?
According to the company's forecast, revenue growth for the streaming service will slow for the fourth consecutive quarter
Netflix reported worse-than-expected results and scaled back its advertising plans. Its stock fell nearly 6% / Photo: Alex Borderline/Shutterstock.com
On October 20, the streaming service Netflix issued a fourth-quarter forecast that fell short of Wall Street expectations and lowered its advertising revenue forecast for 2026. The company expects net income of $2.79 billion, or $0.67 per share, for October through December, while analysts had forecast an average of $3.07 billion and $0.73. Netflix now estimates full-year advertising revenue at approximately $2.7 billion, down from its previous estimate of about $3 billion. In a letter to shareholders, management attributed this to the fact that some advertising tools were rolled out slightly slower than expected, according to Reuters.
Netflix's revenue in the third quarter rose 11.8% to $12.87 billion. The result was in line with analysts' expectations, but this was the company's slowest growth in nearly three years. If Netflix’s forecast holds true, revenue growth will slow for the fourth consecutive quarter, Bloomberg notes. In the final quarter of last year, revenue rose 17.6%, while the company expects only 11.5% growth this quarter.
Netflix released its third-quarter results and fourth-quarter outlook immediately after the close of the Nasdaq’s regular trading session on October 20. During the trading day, Netflix shares fell 1.7% to $68.7, and in after-hours trading, they dropped 5.8% to $64.7.
The report came a few days after Netflix laid off 6% of its workforce and replaced two top executives in charge of content. The streaming giant parted ways with Chief Content Officer Bela Bajaria and Head of Film Dan Lin. Bajaria was replaced by Peter Rice, a former top executive at Disney and 21st Century Fox.
Ted Sarandos, one of Netflix’s two co-CEOs, called the reshuffle a step toward focusing on the core business—producing high-quality series and movies—and making the service indispensable to viewers. “We now see an opportunity to take our lineup of projects to the next level,” he said during a quarterly earnings call with analysts (as quoted by The Wall Street Journal).
What the Market Is Saying About Netflix
Netflix, which shook up Hollywood two decades ago by launching streaming of TV shows and movies, is now competing with YouTube and TikTok, where viewership has surged, according to Reuters. To attract new viewers and increase the time subscribers spend on the platform, the company is investing in video games, podcasts, and live streams. Analysts are wondering how Netflix will be able to reignite its growth.
Ahead of the earnings report, Wall Street was watching to see if the slowdown in viewer engagement would affect revenue. “That’s exactly what we’re seeing in the fourth-quarter forecast,” Gita Rangaratan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance. According to her, Netflix’s growth momentum is slowing, and this “undoubtedly poses problems for the company.”
Emarketer analyst Ross Benes draws attention to advertising. “Netflix is under pressure and needs to find alternative sources of revenue beyond subscriptions, so it’s concerning that the company has lowered its valuation of its advertising business,” he wrote in a comment for MarketWatch. “Restructuring the content strategy isn’t enough to solve this problem, but it’s a good start,” Benes added.
Paolo Pescatore of PP Foresight, quoted by Reuters, says that Netflix “remains a well-oiled and highly profitable machine, but is getting distracted by too many unnecessary things.” In his view, the company needs to “get back to basics and focus on compelling content.”
According to the WSJ as of October 20, 32 analysts recommend buying (Buy) Netflix stock, four rate it “Overweight,” 17 recommend “Hold,” and two recommend “Sell” (Sell). Three months ago, no one recommended “Sell,” while 34 recommended “Buy.” The average target price for Netflix shares ($91) is 32.5% higher than the last closing price ($68.69) and 40.6% higher than the after-hours price ($64.7).
This article was AI-translated and verified by a human editor
