Netflix Q3 revenue forecast misses estimates, shares fall 8.6% after hours

LOS ANGELES — Netflix forecast third-quarter revenue and earnings on Thursday (Jul 16) that fell short of Wall Street targets and said it would cut the frequency of its viewing-hours reports as the company seeks new avenues of growth.

Shares of Netflix fell nearly 8.6% in after-hours trading to US$67.99.

Q3 Forecast Misses Estimates

The company, led by co-CEOs Ted Sarandos and Greg Peters, said it expected:

• Revenue: US$12.86 billion (July through September)
• Diluted earnings per share (EPS): US$0.82

Analysts had forecast US$13 billion in revenue and diluted EPS of US$0.84, according to LSEG.

Growth Strategy Under Scrutiny

After years of rapid subscriber gains, Netflix is working to grow by building advertising, live events, and video games. The company’s stock has lost about a fifth of its value in 2026 as investors question how it will sustain growth.

PP Foresight analyst Paolo Pescatore said the third-quarter projections "appear to reflect a combination of management caution and a naturally maturing growth profile, rather than any sudden deterioration in the business."

He added that they would "reinforce the view that Netflix remains strong but is entering a steadier phase of growth with considerably less room for error given the always-high expectations."

Changes to Reporting

Netflix said it would cut its twice-yearly release of a viewing-hours report to once a year starting in January 2027 "to keep the focus on our primary financial metrics – revenue and operating profit." The company stopped publishing quarterly subscriber numbers in 2025.

Q2 Results

For the just-ended quarter, Netflix revenue and EPS were roughly in line with analyst estimates:

• EPS: US$0.80
• Revenue: US$12.56 billion

The quarter featured hits including crime drama I Will Find You and animated feature Swapped.

"Our financial performance remains solid and we're on track to meet our objectives for the year," the company said in its quarterly letter to shareholders.

Competition Intensifies

Netflix is facing competition from all corners of the entertainment industry, from traditional media companies such as Walt Disney to YouTube, a growing presence in living rooms, and mobile viewing on apps such as TikTok.

In April, Netflix said it had more than 325 million paying members and still had room to increase that number.

Advertising and Live Events

The company is building an advertising business and offering video games, two initiatives still in the early stages. It repeated an earlier forecast that ad revenue would reach US$3 billion by the end of 2026. Netflix is counting on its growing number of live events, including an expanded NFL slate, to draw more advertising dollars.

On a post-earnings video, Peters said the company was considering whether to offer a free option with advertising in some markets but had no near-term plans to launch one.

Engagement and Technology

Netflix said engagement — the amount of time people spend watching the service — was "healthy." Viewing hours grew by 2% in the first half of 2026, compared with 1.5% a year ago.

The company said it aimed to stay ahead of the competition in part by using technology to improve all aspects of its business. Use of generative artificial intelligence by producers is "scaling quickly" and has been employed in about 300 titles, mostly in post-production, the company said. — REUTERS