Netflix cuts ad revenue forecast to $2.7 billion as product rollout slows
Key Facts
Netflix cut its 2026 advertising revenue forecast to about $2.7 billion from about $3 billion previously as it reported third-quarter results on October 20. In a letter to shareholders, the company attributed the revision to a slower-than-expected rollout of some advertising product capabilities. Its forecast published with second-quarter results had assumed advertising revenue would roughly double during the year, before the target was lowered in the latest disclosure. Still, Greg Peters said on the earnings call that the advertising business continued to grow by more than 80% this year. "We're still growing our advertising business by more than 80% this year," he added, according to a call transcript published by Investing.
Netflix's third-quarter revenue totaled $12.87 billion, according to the Associated Press, in line with analysts' expectations. Revenue rose 12% from the same period a year earlier, when the company reported $11.51 billion. The shareholder letter showed diluted earnings per share of $0.87, compared with $0.59 in the third quarter of 2025. The company said this represented a 49% year-over-year increase in diluted earnings per share for the period. Earnings exceeded analysts' estimates compiled by FactSet of 82 cents per share, according to the Associated Press.
For the full year, Netflix said in its shareholder letter that it expects revenue of $51.1 billion in 2026. The company is targeting an annual operating margin of 31.5%, according to the financial outlook released alongside its third-quarter results. The reported quarter's actual operating margin was 34.6%, according to the letter, compared with the full-year target. The company also cut its annual free cash flow forecast to about $12.0 billion in another revision to its financial estimates. Its previous free cash flow estimate was $12.5 billion, according to the comparison provided in its earnings disclosure.
The results coincide with organizational changes announced by Netflix, including layoffs affecting about 6% of its workforce, according to the Associated Press. The plans cover nearly 1,000 jobs, the agency reported, as part of changes to the company's business organization. In content leadership, Netflix announced the appointment of Peter Rice to succeed Bela Bajaria, effective October 26. Rice will oversee the company's global content, including series, films and live events, according to the statement announcing his appointment as chief content officer. The company had said in its second-quarter letter that members' viewing hours in the first half exceeded 97 billion, up 2% year over year.
Netflix shares fell 4.1% in after-hours trading following the results, according to the Associated Press. For the fourth quarter of 2026, the company forecast revenue of $13,442 million in its shareholder letter as the year draws to a close. It also forecast fourth-quarter earnings per share of 67 cents, according to a Reuters report published by Investing. That estimate was below analysts' average forecast of 73 cents per share for the same period, according to the agency. Netflix thus projected earnings for the coming quarter below market estimates after third-quarter earnings exceeded analysts' expectations.
Alongside the cut to its advertising revenue forecast, Netflix plans to introduce its ad-supported plan in 15 additional countries during 2027, according to the shareholder letter. The company set March 2027 for the first wave of launches in new markets under its upcoming expansion plan. That wave includes markets in Europe, the Middle East and Africa, according to the company's details on the rollout's scope. It also includes Colombia, Peru and New Zealand among the markets that will receive the ad-supported plan as the scheduled expansion begins. Before then, Chief Financial Officer Spence Neumann said on the earnings call that the company would provide its 2027 guidance in January, including its profit margin outlook.