Netflix Shares Fall 5 Percent as Fourth Quarter Forecast Misses

Netflix shares dropped 5% in after-hours trading on Tuesday after the streaming company projected fourth-quarter revenue below Wall Street expectations, raising concerns about its growth trajectory. The company reported third-quarter revenue of $12.87 billion and earnings per share of $0.87, while also reducing its full-year 2026 advertising revenue forecast amid slower-than-expected development of advertising capabilities.

According to financial results reported by Yahoo Finance on October 21, Netflix's third-quarter revenue matched analyst estimates, while earnings per share exceeded the consensus forecast of $0.82. However, the company's fourth-quarter revenue projection of $13.44 billion fell short of analysts' $13.51 billion estimate.

Netflix also lowered its 2026 advertising revenue guidance to $2.7 billion from its previous forecast of $3 billion. The company attributed the reduction to delays in rolling out certain advertising product capabilities.

Viewer engagement and the company's ability to sustain growth following price increases have become central concerns for investors. Greg Peters, Netflix's co-CEO, said the company's US audience engagement remained stable but acknowledged room for improvement.

"our engagement is solid, and it will allow us to continue to grow as we have for the last several years," said Greg Peters, co-CEO of Netflix.

Peters said the company wanted to improve its performance further as it sought to maintain audience interest and support future growth.

"But we know that we can do better…It's our goal to go from very good to great," said Greg Peters, co-CEO of Netflix.

Geetha Ranganathan, a senior media analyst at Bloomberg Intelligence, linked the company's fourth-quarter outlook to concerns about its growth pace. Her assessment followed investor scrutiny of whether weaker engagement could affect Netflix's revenue performance.

"That is exactly what we are seeing with the 4Q growth outlook," said Geetha Ranganathan, senior media analyst at Bloomberg Intelligence.

Ranganathan said the forecast pointed to a potential slowdown in the company's growth model, adding to concerns about its outlook.

"This kind of speaks to a slowing growth algorithm, which kind of spells trouble for the company without a doubt," said Geetha Ranganathan, senior media analyst at Bloomberg Intelligence.

The earnings report followed a series of corporate changes announced the previous week. Netflix named former Disney executive Peter Rice as its next chief content officer, replacing Bela Bajaria, who had worked at the company for nearly a decade and held the position since 2023.

Netflix also announced plans to eliminate 6% of its workforce, or approximately 1,000 jobs. According to Yahoo Finance, the reduction represents the company's largest workforce cut since 2022, as management seeks to strengthen its content offering and revive audience growth amid intensifying competition.

Changing viewing habits are adding pressure to traditional streaming businesses. Tom Champion, a director and senior research analyst at Piper Sandler, said video consumption growth increasingly comes from short-form content designed for mobile devices.

"Where a lot of the [video] growth has come from has been short form, has been content especially built for mobile," said Tom Champion, director and senior research analyst at Piper Sandler.

Champion identified TikTok, Instagram Reels and YouTube as prominent platforms in the shift toward mobile-oriented video consumption.

"That's given rise to TikTok and Instagram Reels, and increasingly, YouTube seems like the superpower in terms of video content," said Tom Champion, director and senior research analyst at Piper Sandler.

Before the earnings release, options-market activity had indicated expectations of a substantial share-price reaction. CNBC reported on October 20 that options prices implied a 9% post-earnings move, the largest implied move since Netflix's third-quarter 2022 report, when options indicated an 11% move and the stock subsequently surged 13%.

Over the previous eight quarters, Netflix shares had recorded a median post-earnings move of 7.25%, according to CNBC. Trading activity before the latest report also showed more bullish positioning in several options contracts, although some contracts required a substantial share-price increase to reach breakeven.

As of noon Eastern Time on Tuesday, traders had purchased 1.5 times as many call options as put options, while put-option selling exceeded 150% of average daily volume, CNBC reported. Six of the ten most-purchased contracts were calls, five expiring that Friday.

The largest single options transaction identified by CNBC involved the sale of November 20 put contracts with a $70 strike price, totaling approximately $2 million. Traders also purchased more than 3,500 call contracts with an $80 strike price expiring that Friday, paying more than $210,000 in premiums.