Netflix Q3 2026 earnings: Advertising delays weigh on outlook, but long-term growth remains intact

• Netflix delivered third-quarter revenue broadly in line with expectations, while operating income and diluted EPS beat consensus.

• Fourth-quarter revenue and EPS guidance came in below expectations, while full-year advertising revenue guidance was lowered from around USD 3 billion to USD 2.7 billion due to delays in rolling out advertising capabilities.

• We view the advertising slowdown as a temporary headwind, with ad revenue still growing by over 80% year-on-year, supported by robust advertiser demand and improving monetisation opportunities.

• Netflix is taking steps to strengthen its content offering through new leadership, third-party content partnerships, international programming and live events, which could help reignite growth and deepen member engagement.

• We maintain our Buy recommendation and 2028 target price of USD 148, implying 127% upside from the closing price of USD 65 on 21 October 2026.

Steady third quarter overshadowed by soft guidance and lower advertising forecasts

Netflix delivered third-quarter revenue broadly in line with market expectations and management guidance. Revenue rose 11.8% year-on-year (YoY), supported by membership growth, higher subscription prices and increasing advertising revenue.

Operating income reached USD 4.5 billion, while operating margin came in at 34.6%. Both exceeded market expectations of USD 4.3 billion and 33.1%, respectively, primarily due to the timing of expenses and slightly better-than-expected revenue. Diluted earnings per share (EPS) consequently came in at USD 0.87, above the consensus estimate of USD 0.82.

Table 1: Netflix Q3 earnings

	3Q26	3Q25	Beat/Miss vs Estimate	YoY change
Revenue	12,874	11,510	0.02%	11.8%
Operating Income	4,459	3,248	4.3%	37.3%
Net Income	3,664	2,547	6.1%	43.9%
Diluted EPS	0.87	0.59	6.4%	47.5%
Source: Netflix 3Q26 Shareholder Letter, Bloomberg Finance L.P. Data as of 20 October 2026. Figures are in USD millions except percentages and per share amounts.

Looking ahead, Netflix guided for fourth-quarter revenue of USD 13.4 billion (+12% YoY) and diluted EPS of USD 0.67 (+20% YoY), both below consensus forecasts of USD 13.5 billion and USD 0.73 respectively. The weaker-than-expected profit outlook partly reflects planned workforce reductions, which are expected to weigh on operating margins by approximately 120 basis points. The company plans to cut around 1,000 positions as part of its efforts to improve operational efficiency.

For the full year, management now expects revenue of USD 51.1 billion, 0.2% below the midpoint of its 2026 forecast provided last quarter. This revision primarily reflects a slower-than-expected rollout of certain advertising product capabilities, which more than offset better-than-expected subscription revenue growth. As a result, management lowered its 2026 advertising revenue forecast from around USD 3 billion to approximately USD 2.7 billion.

Despite the weaker advertising outlook and planned workforce reductions, management maintained its full-year 2026 operating margin guidance at 31.5%, incorporating an estimated 30-basis-point negative impact from the fourth-quarter headcount reductions.

Netflix shares fell 5.3% the day after the results, as investors reacted to the weaker-than-expected fourth-quarter profit outlook and the reduction in full-year advertising revenue guidance.

Advertising headwinds are temporary, while content remains key to sustaining growth

We view the slower-than-expected advertising growth as a temporary headwind. The delays in rolling out certain advertising products and integrating partner capabilities do not alter our long-term investment thesis for Netflix.

Although Netflix is likely to fall short of its target of doubling advertising revenue this year, advertising revenue growth remains strong at more than 80% YoY. Demand for advertising inventory remains robust, while the range of advertisers on the platform continues to broaden. The gap between the average revenue per member (ARM) of Netflix's ad-supported tier, which combines subscription and advertising revenue, and that of its standard ad-free tier is also narrowing, indicating improving monetisation.

We expect advertising revenue to continue growing strongly as Netflix introduces new ad formats and expands its first-party measurement and reporting capabilities to better serve advertisers. The company also plans to launch its ad-supported tier in 15 additional markets next year, expanding its potential advertising inventory. Put simply, more members on the ad-supported tier will create more inventory to sell, while improvements in advertising technology should help Netflix generate more revenue from that inventory.

Beyond advertising, subscription revenue remains the backbone of Netflix's business, supported by its pricing power and ability to retain members. Retention remained healthy across all regions despite price increases earlier this year, with global churn improving YoY in the third quarter and coming in better than forecast. In the US, Netflix subscribers pay less per hour of viewing than users of competing subscription video-on-demand (SVOD) services, in some cases less than half as much. This reinforces the value proposition of its service and provides room to sustain pricing over time.

That said, content remains a key area for improvement, particularly in the US, where Netflix needs stronger releases to reaccelerate growth. Netflix has not produced a major film hit in recent months, while its standing with critics has also weakened. Netflix won just 16 Emmy Awards this year, its fewest in a decade and a sharp drop from 30 wins in 2025 and 24 in 2024. In the overall network race, Netflix fell to third place, behind Apple TV+ (28 wins) and HBO Max (19 wins).

Netflix is taking steps to address these challenges. The appointment of Peter Rice as Chief Content Officer, replacing Bela Bajaria, signals a renewed focus on creative execution and relationships with talent. Rice previously served as chairman of Walt Disney Television and held senior leadership positions at The Walt Disney Company and 21st Century Fox. His experience spans television networks, film studios, streaming, prestige cable and live sports. In an increasingly competitive entertainment industry, where creative talent has numerous options, strong relationships with creators are essential. We believe Rice's experience could help Netflix attract leading creative talent, strengthen its US content slate and produce more titles with global appeal.

Netflix is also broadening its entertainment offering through third-party content licensing and partnerships, adding value for members while complementing its original programming. Its partnership with French broadcaster TF1, for example, has performed well, enriching local programming for French members and driving incremental engagement. Viewing has grown month after month without cannibalising engagement elsewhere on the platform. Other notable licensing agreements include bringing all the Ice Age films and additional Disney content to Netflix, as well as its largest-ever content licensing deal with Globo in Brazil for local titles.

International markets also offer further room for membership growth, particularly where streaming penetration remains relatively low. India, for example, recorded a 24% increase in viewing hours and nearly 20% YoY membership growth in the third quarter, supported by a strong content slate. These results highlight the potential for compelling local programming to drive engagement and subscriber growth in less penetrated markets.

Finally, live events and sports remain another avenue for Netflix to differentiate itself in an increasingly crowded streaming market. With viewers facing an overwhelming range of entertainment choices, live programming can help Netflix capture attention, attract new members and deepen engagement with existing subscribers. It can also create additional opportunities to generate advertising revenue and improve retention.

Taken together, we believe Netflix's pricing power, expanding advertising monetisation opportunities and international growth prospects continue to underpin its long-term investment thesis. However, the company's ability to strengthen its content offering and execute on its advertising strategy will be important in sustaining growth and restoring investor confidence.

A weaker share price offers an opportunity as Netflix works to reignite growth

Netflix shares have fallen 30.6% year-to-date as the company contends with slowing revenue growth and intensifying competition in the streaming market. Nevertheless, we believe much of the negative sentiment is already reflected in the share price, leaving the stock significantly undervalued even under conservative earnings assumptions.

We maintain our 2026–2028 earnings projections and 2028 target price of USD 148, implying upside potential of 127% from the closing price of USD 65 on 21 October 2026. We therefore maintain our Buy recommendation on Netflix.

We expect the stock to rerate as the company demonstrates signs of accelerating revenue growth, supported by a stronger content slate, continued international expansion and improvements in advertising capabilities. While near-term execution challenges remain, we believe the current valuation offers an attractive entry point for investors with a longer-term investment horizon.

Table 2: Projections for Netflix’s earnings

Netflix	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	2.5	3.2	3.8	4.5
Earnings Growth YoY	29.7%	26.8%	17.4%	18.3%
PE Ratio (X)	36.9	20.2	17.2	14.6
Target Price (based on a fair PE of 33X)				148
Upside Potential				126.8%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 21 October 2026

Figure 1: Share prices are driven by earnings growth in the long run

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in Netflix Inc.