Netflix's third quarter came in mixed: sales of $12.9 billion aligned with Wall Street's view, while earnings of 87 cents per share beat the 82 cents estimate. The shares dropped up to 7% in trading following the report.
Guidance set a more cautious tone. Management projected fourth quarter revenue of $13.4 billion, short of analysts' models, and an operating margin of 26% that will be dented by severance costs from the layoffs. Growth is set to slow, with the annual pace easing to an expected 11.5% in the fourth quarter from 17.6% in the comparable period a year ago.
The company pinned the sales gap on its advertising unit, which it now expects to come in $300 million below its internal target. Co CEO Ted Sarandos said last month he is "working on making that move faster," acknowledging the company is not expanding as quickly as he would like.
Engagement remains under the microscope. Netflix's US TV viewing share is 7.8% per Nielsen, well behind YouTube at about 14%. Viewing time increased only 2% over the year's first six months compared with the same stretch a year earlier.
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Sarandos moved swiftly on programming. After announcing a 6% workforce reduction - roughly 1,000 roles - Netflix ousted Bela Bajaria from the Chief Content Officer position and Dan Lin from his film chief post, actions aimed at reversing what leadership sees as a slide in quality. The last time Netflix made cuts of this scale was in 2022, when it recorded its first quarterly subscriber decline in more than a decade.
Peter Rice, a long time film and TV executive who had been Walt Disney Co.'s chairman for general entertainment and earlier the president at 21st Century Fox, is taking over the content group. In a letter to investors, the company wrote, "With intense competition and an explosion of content competing for consumer attention, strategic clarity and excellent execution are critical," adding that while it is delivering on priorities, "we see room to do even better."
Netflix remains the streaming leader by scale, with more than 325 million subscribers, which it equates to nearly 1 billion viewers, and the company claims its audience time surpasses every other Hollywood streaming competitor. Yet the company has gone months without a breakout, culture defining title and has struggled to pull audiences to new series and follow on seasons. Its Emmy haul fell to a 10 year low in 2026.
Skepticism has been building. After an unsuccessful bid to buy Warner Bros. Discovery Inc.'s streaming and studio operations, Netflix has faced questions about its growth path without deals. The stock is down about 25% year to date and over 40% compared with a year ago. The company is leaning into more ways to keep users engaged - live sports, podcasts, video games, and licensed programming from partners such as TF1 in France - while analysts like Seaport Research Partners' David Joyce say, "Investors will need, in short order, some indications toward confidence in the growth trajectory that this powerful, global platform should be able to provide."
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