Netflix cuts advertising outlook to $2.7 billion despite revenue growth
Key Facts
Netflix cut its forecast for 2026 advertising revenue to about $2.7 billion from about $3 billion previously, according to Reuters, as it announced third-quarter results on October 20. The revision came despite a 12% year-on-year increase in quarterly revenue, according to the Associated Press, leaving the results showing both business growth and a decline in expected advertising revenue. Revenue totaled $12.87 billion for the quarter, compared with $11.51 billion in the same period a year earlier. Management attributed the lower advertising estimates to a slightly slower rollout of some advertising product capabilities than it had expected. In after-hours trading on the evening of the announcement, the company's shares fell 4.1% to $65.90, according to Associated Press coverage.
Netflix reported third-quarter net income of $3.66 billion, according to the Associated Press, while earnings per share exceeded analysts' average estimate. Reuters reported earnings per share of 87 cents, compared with an average forecast of 82 cents in a London Stock Exchange Group survey. The company's shareholder letter, filed with the U.S. Securities and Exchange Commission, also showed an improvement in its operating margin over the same period. The margin rose to 34.6% from 28.2% in the third quarter of the previous year, according to the letter. Annual revenue growth was thus accompanied by an improvement in operating profit as a share of revenue, alongside earnings per share that exceeded analysts' expectations.
Explaining its operating performance, Netflix said in its shareholder letter that operating profit and margin exceeded its forecasts, primarily because of the timing of expenses during the period. It added that revenue coming in slightly above its forecast also contributed to the performance, alongside the expense factor. The company described the main reason as "the timing of expenses," linking the quarterly result to when costs were incurred. In advertising, Reuters quoted management as describing the rollout of some product capabilities as "slightly slower than expected." The company thus linked its operating outperformance to spending timing, while tying its revised advertising outlook to the pace at which some product capabilities became available, with each explanation addressing a different part of its business.
A week before the results, plans emerged to lay off about 6% of Netflix's employees, a move the Associated Press said was part of broader organizational changes within the company. The planned reduction amounts to roughly 1,000 jobs, according to coverage of the workforce reduction plans ahead of the quarterly results. Co-CEOs Greg Peters and Ted Sarandos outlined the expected scope of the plans' impact in a memo to employees. According to the memo cited by the Associated Press, product and technology teams will be among those most affected by the job cuts. Legal and human resources are also among the teams most affected, placing the announced organizational changes across several company functions as it presented its results and business outlook.
Alongside the internal changes, Netflix plans to expand its offerings by licensing more third-party content, according to Reuters' reporting on the company's plans. The move adds an expansion of available content to its business agenda, alongside work to roll out advertising product capabilities. The company had set the release of its third-quarter results for about 1:01 p.m. Pacific Time in an investor relations announcement. The announced schedule also included the publication of its business outlook, putting estimates for future revenue in the same announcement as the performance of the completed period. The plans were presented after the announcement of job cuts and alongside the revision to advertising estimates, with expanding its offerings through licensed content remaining one of the company's announced initiatives.
For the period following the results, Netflix expects revenue of $13.4 billion in the fourth quarter of 2026, according to its shareholder letter filed with the U.S. Securities and Exchange Commission. In the same letter, the company set its full-year revenue forecast at $51.1 billion, providing an estimate for its business through year-end. These figures concern the company's total revenue, while the forecast reduction announced alongside them applied to annual advertising revenue estimates. Plans to license more third-party content form part of the company's push to expand its offerings, alongside the advertising capabilities whose rollout pace management discussed. The final-quarter and full-year forecasts, as presented with the October 20, 2026 results, remain the financial framework Netflix set out for the period ahead.