Earnings
Netflix cuts its 2026 ad revenue forecast and guides below estimates, sending shares lower after hours
A record buyback and a 34.6% operating margin were overshadowed by a softer fourth-quarter outlook and a $300 million cut to the advertising target.
HedgeWeekly News Desk ·
Netflix lowered its 2026 advertising revenue forecast to about $2.7 billion from roughly $3 billion on Tuesday and gave a fourth-quarter profit outlook below analyst expectations, taking the shine off a third quarter in which its operating margin widened to 34.6%. The shares fell nearly 7% to $63.99 in after-hours trading, Reuters reported, after closing the regular session at $68.69.
Third-quarter revenue rose 12% from a year earlier to $12.87 billion and operating income climbed 37% to $4.46 billion, according to the shareholder letter Netflix filed with the SEC. Diluted earnings per share came to $0.87, up from $0.59 a year earlier and above the 82-cent average forecast compiled by LSEG. The company said the lower ad target reflected a slower rollout of some advertising product capabilities.
For the fourth quarter, Netflix guided to revenue of $13.44 billion, an operating margin of 26.0% that includes about 120 basis points of cost from recent headcount reductions, and EPS of $0.67, against an analyst average of 73 cents. It now sees full-year revenue of $51.1 billion, slightly below the midpoint of its prior range, and free cash flow of about $12.0 billion, down from roughly $12.5 billion, mainly because of a real estate transaction expected to close in the fourth quarter. The results followed the company's cut of about 1,000 jobs, roughly 6% of its workforce, and the appointment of former Disney executive Peter Rice to replace Bela Bajaria at the head of content.
Why it matters: management is leaning hard on capital returns while growth slows. Netflix bought back 63.9 million shares for $4.8 billion in the quarter, its largest ever, and has $22.3 billion of authorization left, against gross debt of $15.3 billion and cash of $8.2 billion. The stock was already down about 25% this year and about 48% from its June 2025 record, so the ad business, which expands to 15 new countries from March 2027, is now the clearest test of whether the margin story can carry the shares without faster subscriber-driven revenue growth.