Netflix Beats on Profit but Lowers Its Ad Target

Keypoints:

• Third-quarter revenue rose 12% to $12.87 billion, in line with Netflix's own forecast
• Earnings of $0.87 per share beat the $0.82 estimate and rose 49% from $0.59
• Operating margin reached 34.6%, up from 28.2% a year earlier
• The 2026 advertising revenue target was cut to $2.7 billion from about $3 billion
• Shares fell about 6% in after-hours trading

Netflix reported third-quarter results on 20 October. Revenue grew 12% to $12.87 billion, or 11% on a currency-neutral basis. That matched the company's own forecast. Net income was $3.66 billion, up from $2.55 billion a year earlier.

Profit beat expectations. Earnings per share of $0.87 compared with $0.82 expected. Operating margin of 34.6% topped the 33.2% the company had forecast. Netflix said the gap came mainly from the timing of expenses. Operating income rose 37% to $4.5 billion.

Price increases helped revenue. A subscription price rise that took effect in March, plus membership growth, drove the gain. Netflix pointed to titles such as The Last House, an NFL game from Melbourne and a strong slate in India. It also said its audience is approaching one billion people.

The reaction came from the outlook. Netflix now expects advertising revenue of $2.7 billion in 2026, down from a target of about $3 billion. Management attributed the cut to a slower rollout of ad product capabilities. The company still projects ad revenue to grow about 80% this year.

Fourth-quarter guidance was soft. Netflix forecast revenue of $13.44 billion, up roughly 12%, and earnings of $0.67 per share. It narrowed full-year revenue to $51.1 billion, up 13%, with an operating margin of 31.5%. Variety reported that the fourth-quarter margin forecast of 26.0% includes costs tied to layoffs. Free cash flow for the year is now expected at $12.0 billion, down from $12.5 billion.

Shares closed down 1.66% at $68.69 in regular trading. They fell about 6% after the report. Investors rewarded a profit beat less than they punished a cut to the growth story.