Netflix ad revenue forecast cut to $2.7 billion as shares slide

A lower Netflix ad revenue forecast took the shine off an otherwise strong quarter on Tuesday, Oct. 20. The streamer now expects about $2.7 billion of advertising revenue in 2026, down from roughly $3 billion, and its shares fell more than 5% in after-hours trading, CNBC reported.

What happened

Third-quarter revenue rose 11.8% to $12.87 billion, in line with the company's own forecast. Operating income climbed 37% to $4.46 billion, and the operating margin widened to 34.6% from 28.2% a year earlier. Diluted earnings per share came in at $0.87, compared with $0.59, while net income rose to $3.66 billion.

Netflix said the margin beat its forecast mainly because of the timing of expenses, plus slightly higher revenue. It bought back 63.9 million shares for $4.8 billion, its largest quarter of repurchases, and still has $22.3 billion of authorization left.

For the full year, it now sees revenue of $51.1 billion, up 13%. That sits at the low end of the $51 billion to $51.4 billion range it gave in July and below the $51.2 billion analysts expected, according to LSEG data cited by CNBC.

Why it matters

The ad business was meant to be the next growth engine, so the cut matters more than its size suggests. Netflix blamed a slower-than-planned rollout of some ad product features. Co-CEO Greg Peters said on the call that the company was "a bit behind our aggressive target for the year," while describing the build-out as the fastest of its kind in the industry.

Costs are also shifting. Last week Netflix said it would cut about 6% of staff, roughly 1,000 jobs. It guided fourth-quarter revenue to $13.44 billion with an operating margin of 26.0%, which includes about 120 basis points of hit from those reductions, and set a full-year margin target of 31.5%.

Growth was broad. On a currency-neutral basis, revenue rose 11% in the U.S. and Canada, 9% in Europe, the Middle East and Africa, 12% in Latin America and 15% in Asia-Pacific, according to the call. Free cash flow was $2.9 billion in the quarter, and Netflix now expects about $12 billion for the year, down from $12.5 billion, because a real estate deal closes in the fourth quarter. The softer Netflix ad revenue forecast does not change that cash picture much, since subscriptions still drive most sales.

The 34.6% margin also landed above the 32% to 34% band that traders favoured before the report, a setup we described in our Netflix operating margin odds piece. That contract settled No, and our own Record call on it missed.

What's next

Leadership is changing too. Chief content officer Bela Bajaria is leaving that role, and former Disney executive Peter Rice has been named as her successor, CNBC reported.

Netflix plans to bring its ad tier to 15 more countries in 2027, starting in March with nine markets in Europe, the Middle East and Africa plus Colombia, Peru and New Zealand. Investors will watch whether the next update restores the Netflix ad revenue forecast or trims it again.

The figures are laid out in the shareholder letter. Wednesday's session will show whether the after-hours drop sticks, with big tech in focus after the Nasdaq chip rebound and Meta's results due after the close.