Netflix profit beats estimates, but stock slides on weak guidance and ad-revenue cut

Netflix reported third-quarter earnings on Tuesday that beat Wall Street's profit estimate, but the company's shares fell in after-hours trading as investors focused on a weaker-than-expected fourth-quarter outlook, a scaled-back advertising forecast and the costs of a round of layoffs the streaming company announced earlier in the month.

The results, disclosed in a letter to shareholders filed with the Securities and Exchange Commission, showed revenue of $12.87 billion for the quarter ended September 30, up 12 percent from a year earlier, in line with the company's own forecast. Diluted earnings per share came in at 87 cents, ahead of the roughly 82 cents analysts had expected and up sharply from 59 cents a year earlier. Operating income rose 37 percent to $4.46 billion, giving Netflix an operating margin of 34.6 percent, several points above the 33.2 percent the company had guided to in July.

The numbers behind the beat

Netflix said net income climbed to $3.66 billion from $2.55 billion in the same period last year, and free cash flow rose to $2.88 billion from $2.66 billion. The company also disclosed its largest quarterly buyback on record, repurchasing 63.9 million shares for roughly $4.8 billion, leaving $22.3 billion of its existing authorization unspent.

Revenue growth by region was broadly similar across markets: the United States and Canada brought in $5.63 billion, up 11 percent; Europe, the Middle East and Africa generated $4.11 billion, up 11 percent; Latin America grew 17 percent to $1.60 billion; and the Asia-Pacific region rose 12 percent to $1.54 billion. Netflix highlighted India in particular, where it said viewing hours rose 24 percent year over year alongside a record quarter for paid net additions. The company no longer discloses a quarterly subscriber count, instead describing an audience it says is "approaching one billion people."

Despite the headline beat, Netflix's stock closed the regular session on the Nasdaq at $68.69, down 1.66 percent, and then slid roughly 6 percent further in extended trading after the report, according to Yahoo Finance's coverage of the release. The company's revenue growth has now decelerated for three straight quarters, and investors appeared to weigh that trend, along with softer guidance, more heavily than the quarter's profit upside.

Guidance disappoints, advertising forecast cut

For the fourth quarter, Netflix forecast revenue of $13.4 billion, modestly below the roughly $13.5 billion analysts had modeled, and projected diluted earnings of 67 cents a share against consensus estimates near 73 cents. The company's own fourth-quarter operating margin guidance of 26 percent, versus 24.5 percent a year earlier, explicitly includes what the shareholder letter describes as "approximately 120 basis points negative impact associated with" the headcount reductions it announced on October 14. For the full year, Netflix now expects revenue of about $51.1 billion, growth of 13 percent, slightly below the midpoint of its earlier $51 billion to $51.4 billion range, with a full-year operating margin of 31.5 percent, up from 29.5 percent in 2025.

The company also lowered its 2026 advertising revenue forecast to approximately $2.7 billion from roughly $3 billion previously, attributing the shortfall to delays in rolling out some advertising-technology capabilities rather than to weaker demand from marketers. On the earnings call, co-chief executive Greg Peters said advertiser interest remained strong and characterized the shortfall as an execution delay rather than a demand problem. Netflix said it extended programmatic advertising partnerships, including new deals in Latin America and Europe, and that its ad-supported tier will expand into 15 additional countries starting in March 2027.

Layoffs and a leadership change frame the quarter

The earnings report landed less than a week after Netflix told employees it would eliminate roughly 1,000 jobs, or about 6 percent of its workforce, in its largest round of cuts since 2022. Co-chief executives Ted Sarandos and Greg Peters told staff in an October 14 memo that the reductions, concentrated in the product, technology, legal and human-resources teams, were intended to sharpen focus even as "the business is strong and growing," according to coverage of the memo by Variety. "Decisions like these are never easy, and we don't take them lightly," the executives wrote.

The following day, Netflix announced that Bela Bajaria, its chief content officer for roughly a decade, would depart the company. Her successor, Peter Rice, a former Walt Disney Television chairman and 21st Century Fox executive, will join Netflix effective October 26 and will oversee the company's global content organization across scripted and unscripted series, film and live programming, according to the official announcement posted to Netflix's newsroom. Sarandos credited Bajaria for a decade of "dedication, innovation, creativity and leadership."

On the earnings call, Sarandos acknowledged uneven results in the company's home market even as international slates outperformed.

"We do need better execution in the US," Sarandos said, contrasting the domestic content pipeline with programming performance abroad.

Who is affected, and what comes next

The cuts affect employees across Netflix's corporate functions, while the leadership change shifts creative decision-making to an executive with a longer television and film studio background than his predecessor. Advertisers working with Netflix's ad-supported tier, which the company says still carries roughly 80 percent revenue growth this year off a smaller base, face a delayed timeline for some of the targeting and measurement tools Netflix had previously promised. Shareholders, meanwhile, are weighing a company that continues to generate record profit and cash flow against a growth rate that has slipped from above 16 percent in the first quarter of the year to under 12 percent in the third.

Chief Financial Officer Spencer Neumann told analysts that Netflix will provide 2027 financial guidance in January, when the company typically reports fourth-quarter results, and did not quantify how much the October restructuring is expected to save going forward. In the nearer term, Netflix's full-year free cash flow forecast was trimmed to about $12 billion from a prior $12.5 billion, which the company attributed mainly to the expected closing of a real-estate transaction in the fourth quarter rather than to the operating business. Rice's arrival later this month and the rollout of new advertising markets in 2027 are likely to be the next concrete milestones investors watch as Netflix tries to show that its slowing subscriber growth is not translating into a slowing profit machine.