Netflix cuts advertising revenue forecast to $2.7 billion; shares fall
Key Facts
Netflix cut its 2026 advertising revenue forecast to about $2.7 billion as it reported third-quarter results on October 20, according to Reuters. The company had previously targeted about $3 billion from its advertising business for the year before revising its estimates alongside its quarterly performance and outlook. The lower advertising target came with a fourth-quarter earnings per share forecast below analysts' estimates, despite third-quarter earnings exceeding expectations. Shares fell 4.1% in trading after the results, according to an Associated Press report on the evening of the announcement. The stock traded at $65.90 in that report as investors digested the results for the completed period and financial projections for the next.
Netflix posted quarterly net income of $3.66 billion in the third quarter of 2026, according to the Associated Press, which reported the company's results alongside analysts' expectations. Earnings per share for the period were 87 cents, exceeding the level expected by analysts surveyed by FactSet. Those analysts had forecast third-quarter earnings per share of 82 cents, putting the actual result above their consensus for the period. For the fourth quarter of 2026, Netflix forecast earnings per share of 67 cents, according to Reuters' report on the company's new projections. That compares with an average analyst estimate of 73 cents, leaving the next quarter's forecast below consensus after the company beat it in the completed quarter.
In its operating outlook, Netflix projected a fourth-quarter operating margin of 26.0%, according to the shareholder letter released with its third-quarter results. The forecast includes a negative impact of about 120 basis points related to workforce reductions, which the company incorporated into its margin estimates for the coming period. The effects of the workforce cuts thus factor into the operating projections for the final quarter of the year, alongside the new earnings per share forecast. For the full year, the company forecast an operating margin of 31.5% for 2026, according to the same shareholder letter. That estimate puts the expected annual margin above the fourth-quarter margin, which bears the negative impact associated with workforce reductions.
Netflix also lowered its annual free cash flow forecast to about $12.0 billion for 2026, according to the shareholder letter, alongside the revision to its advertising outlook. Its previous free cash flow estimate for the same year was $12.5 billion, before the revision announced with its quarterly results. The company attributed the reduction primarily to the expected closing of a "real estate transaction" during the final quarter, according to the explanation in its letter. Among its cash uses during the third quarter, Netflix spent $4.8 billion repurchasing its shares, according to figures disclosed to shareholders. That was the company's largest quarterly share repurchase expenditure on record, bringing a record volume of buybacks alongside the revision to its annual cash flow target.
Third-quarter free cash flow totaled $2,884 million, according to the shareholder letter, as part of the financial results Netflix presented for the completed period. Following the quarterly repurchases, the company had $22.3 billion remaining under its share repurchase authorizations when it announced the results. Total debt at the end of the third quarter stood at $15.3 billion, according to the balance sheet included in the company's letter. On the cash side of the balance sheet, cash and cash equivalents totaled $8.2 billion at the end of the same period. Regionally, Netflix's operations in Europe, the Middle East and Africa recorded quarterly revenue of $4,107 million in the third quarter of 2026.
Netflix's next steps include a change in global content leadership, alongside expanding the reach of its ad-supported plan next year. Peter Rice takes over global content leadership from Bela Bajaria on October 26, according to the Associated Press, in a management change following the quarterly results announcement. In advertising, the company plans to launch the plan in 15 additional countries, according to the expansion plans outlined in its shareholder letter. Netflix set 2027 for those launches, after cutting its advertising revenue estimates for the current year. The first wave of launches in the new markets is scheduled to begin in March 2027, according to the timetable announced to shareholders.