Netflix Stock Falls as Fourth Quarter Forecast Misses Despite Profit Beat

Developing story. Updated 02:11 UTC.

On the earnings call late on Tuesday, October 20, co-chief executive Ted Sarandos set out how Netflix plans to win back faster growth. He said the company wants to be the must have entertainment service, the first one members check for a great series or a great film and the last service they would ever cancel. He said original series and films are the anchor of that strategy, with something new to watch every week.

Sarandos pointed to live events as the other driver. He said live events like the Canelo and Crawford fight and the sports Netflix carries with the NFL and Major League Baseball break through, stand out, drive new membership, add fuel to advertising revenue and please existing members. He also admitted the slate needs to improve, saying Netflix knows it could do better and has seen a chance to take its programming to the next level, especially in the United States. Peter Rice, the former Disney and Fox executive who is taking over as chief content officer, starts on October 26.

Netflix shares fell nearly 7 percent to 63.99 dollars in after hours trading on Tuesday, October 20, after the streaming company issued a fourth quarter profit forecast that missed Wall Street expectations, even as its third quarter earnings beat forecasts.

Netflix reported third quarter revenue of 12.87 billion dollars, up 11.8 percent from 11.51 billion dollars a year earlier and in line with analyst estimates. Earnings per share came in at 87 cents, ahead of the 82 cents analysts had expected. Net income rose to about 3.66 billion dollars from 2.55 billion dollars a year ago, operating income reached 4.46 billion dollars, and the operating margin was 34.6 percent. Free cash flow for the quarter was 2.88 billion dollars.

The forecast that moved the stock

For the fourth quarter, Netflix expects revenue of 13.44 billion dollars, earnings of 67 cents a share and net income of about 2.79 billion dollars. Analysts had expected revenue of about 13.52 billion dollars, earnings of 73 cents a share and net income of about 3.07 billion dollars. The company put its fourth quarter operating margin at 26 percent, below the level analysts had pencilled in, and said costs linked to its recent job cuts would weigh on margins during the quarter.

Netflix also narrowed its full year outlook. It now expects 2026 revenue of about 51.1 billion dollars, at the low end of its earlier range of 51 billion to 51.4 billion dollars, with growth of 13 percent. It held its full year operating margin target at 31.5 percent, but lowered its free cash flow forecast to about 12 billion dollars from about 12.5 billion dollars.

Ads and the growth question

Netflix cut its 2026 advertising revenue forecast to about 2.7 billion dollars from about 3 billion dollars, saying some ad product capabilities had rolled out slightly slower than expected. Advertising is central to the company plan to keep growing as subscription growth matures, so the cut landed hard with investors.

Revenue growth of 11.8 percent was the slowest rate in nearly three years, Reuters reported. Netflix faces rising competition for viewing time from YouTube and TikTok, and analysts have questioned how the company will restart faster growth. In its letter to shareholders, Netflix said it knows there is investor concern about growth in viewing hours, and that member response to this year's price increases has matched its expectations. The company said it will license more third party content, keep investing in original shows, live events, games and podcasts, and work to keep the service a must have for members.

A company in the middle of a reset

The results came days after a major shake up. On October 14, Netflix told staff it would cut about 1,000 jobs, roughly 6 percent of its workforce, in its largest round of layoffs since 2022. It has also replaced two top programming executives. Peter Rice, a former Disney and Fox executive, has taken over from chief content officer Bela Bajaria, and film chief Dan Lin has left the company. Netflix said the changes will let it invest in high impact areas.

The stock closed the regular session down 1.7 percent at 68.69 dollars. Shares are down about 27 percent this year and have fallen more than 40 percent over the past year, a slide that raised the stakes for this report and left investors with little patience for a soft outlook.