Netflix cuts its ad forecast and the stock drops despite a strong quarter

The quarter. Revenue grew 11.8% to $12.87 billion, exactly what the company had promised. Operating margin, the share of revenue left after core costs, was 34.6% versus 28.2% a year earlier. Netflix says this was mostly about the timing of expenses. Net income was $3.66 billion. Variety notes revenue growth was the slowest in three years.

What disappointed. For Q4 Netflix expects $13.4 billion, up 11.5%. Variety says Wall Street expected $13.5 billion. For full-year 2026 the company expects $51.1 billion (+13%), 0.2% below the midpoint of its earlier range. Subscriptions are beating the plan, ads are not: about $2.7 billion instead of roughly $3 billion. The company blames a slower than expected rollout of some ad product features.

Layoffs. Deadline reports Netflix cut about 1,000 jobs. The shareholder letter says the cuts will take about 1.2 percentage points off the Q4 margin. The full-year margin is expected at 31.5% versus 29.5% in 2025.

What comes next. The company admits investors worry about viewing growth and says it wants to speed it up. The ad tier launches in 15 more countries in 2027, starting in March: nine countries in Europe, the Middle East and Africa, plus Colombia, Peru and New Zealand. How far the stock falls in regular trading is not yet known.

Confirmed facts

• Netflix Q3 revenue rose 11.8% to $12.87 billion; earnings per share were 87 cents versus 59 a year earlier.^[1][2][3]
• Operating margin was 34.6% versus 28.2% a year earlier.^[1][3]
• Q4 forecast: revenue of $13.4 billion (+11.5%) and a 26% operating margin.^[1][3]
• The 2026 ad revenue forecast was cut to about $2.7 billion from roughly $3 billion.^[1][2]
• The 2026 revenue forecast is $51.1 billion (+13%), 0.2% below the midpoint of the earlier range.^[1]
• The job cuts will take about 120 basis points off the Q4 margin.^[1]
• Netflix cut about 1,000 jobs, around 6% of its workforce.^[2]
• Netflix shares fell in after-hours trading on 20 October.^[2]
• The ad tier will launch in 15 more countries in 2027, with the first launches in March 2027.^[1]

Implications

• ConfirmedAds will bring Netflix less in 2026 than it promised earlier.
• Our readingSlower ad growth could push Netflix to raise subscription prices again.
• Our readingThe weak outlook may weigh on other streaming and media stocks.

Still unknown

• How far the stock falls in regular trading.
• When the delayed ad features go live.
• Whether viewing time growth speeds up.

Who it affects

USA, World. Anyone holding Netflix or tech funds, and Netflix subscribers

Sources

1. Netflix (SEC Form 8-K, Exhibit 99.1): Netflix Q3 2026 Letter to Shareholders October 20, 2026 · official
2. Deadline: Netflix Stock Falls Despite Solid Q3 Results On Lowered Advertising Guidance, Disappointing Revenue Outlook October 20, 2026 · media
3. Variety: Netflix Q3 Revenue Meets Wall Street Estimates, Forecasts Q4 Slowdown and Says It Will Miss Ad Sales Target for the Year October 20, 2026 · media