Netflix did fine this quarter. Revenue came in at $12.56 billion, just a hair below the $12.59 billion analysts were looking for. Revenue grew 13% compared with the same quarter last year. Net income hit $3.40 billion, up from $3.13 billion in the same period last year.
Those numbers look solid. So why did the stock drop 7% on Friday?
The issue centered on the company's earnings forecast, which disappointed investors. Netflix told investors it expects revenue growth of 12% for the third quarter. The company also narrowed its full-year 2026 revenue forecast to a range of $51 billion to $51.4 billion, down from its earlier range of $50.7 billion to $51.7 billion.
Netflix also made a change that raised eyebrows. For the past few years, those reports came out twice a year.
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Co-CEO Greg Peters tried to explain why the change made sense. "There is not a linear relationship between viewing hours and revenue and profit, because all hours are not created equal," he said.
Netflix described overall engagement as "healthy." Members watched more than 97 billion total hours of content in the first half of 2026.
Netflix still sees ad revenue as a big growth driver. The company is targeting $3 billion in ad revenue for 2026, roughly double what it brought in the year before. It is in advanced talks with U.S. advertisers about ad commitments.
The company is also thinking about a free ad-supported tier in some markets. Co-CEO Greg Peters said such a move "could make sense in some markets, but we have to be thoughtful about cannibalization of paid tiers." He added that having a working ad business in a country is an important factor before launching a free option.
On the acquisition front, Netflix is staying disciplined. The company tried to buy some assets from Warner Bros. Discovery late last year, but the deal fell through. CFO Spencer Neumann put it plainly: "We are primarily builders, not buyers. We have a really high bar."
Live programming is part of the mix but remains small. More than 5% of content spending goes to live shows, and live programming accounts for about 1% of total viewing hours.
Netflix's own shareholder letter noted that the "entertainment industry remains dynamic and competitive."
The streaming landscape remains intensely competitive, with rivals like Disney+, Amazon Prime Video, and Apple TV+ vying for subscribers. Netflix has responded by focusing on its ad-supported tier, password-sharing crackdowns, and exclusive content deals. The company's decision to reduce reporting frequency for engagement data is seen by some analysts as an effort to shift investor attention away from raw viewing metrics and toward revenue and profit growth. While Netflix remains the largest pure-play streaming service by paid members, its valuation is now tied more closely to its ability to grow ad revenue and maintain subscriber momentum in a market that is becoming increasingly saturated.
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