Netflix (NFLX) Hits Two-Year Low as Ad Cut Overshadows Q3 Beat

Netflix (NFLX) did what Wall Street asked on profit, then handed investors a reason to sell anyway. Shares closed Wednesday at $65.04, down 5.3%, and touched their lowest level since August 2024.

The problem wasn't the quarter it just reported. Third-quarter revenue of $12.87 billion matched the company's own forecast, and earnings of $0.87 a share topped the $0.82 consensus. The problem was what came next.

Netflix guided fourth-quarter revenue to $13.44 billion, a hair under the $13.51 billion analysts were expecting, as Yahoo Finance reported. It also cut its 2026 advertising revenue forecast to roughly $2.7 billion from $3 billion, pointing to a slower-than-expected rollout of some ad product capabilities.

That $300 million trim matters because advertising was supposed to be the next leg of growth. The Zacks breakdown of the quarter adds that Netflix also lowered its 2026 free cash flow outlook to $12 billion.

The underlying business still looked healthy. Operating margin widened to 34.6% from 28.2% a year ago, helped partly by the timing of expenses, and churn improved both globally and in the U.S. Revenue grew 11.8%, with Latin America up 17% and India a standout on viewing hours.

Analysts reacted by trimming targets rather than abandoning the stock. Bernstein cut its target to $80, and MoffettNathanson went to $90 from $100 while keeping its Buy rating. Wedbush stayed at Outperform but lowered its target from $90 to $80.

Others were less forgiving. Needham's Laura Martin cut her rating to Hold from Buy, worried that rising competition leads to margin compression and slower revenue growth. Pivotal Research's Jeff Wlodarczak trimmed his year-end target by $5 to $65 after raising his programming-cost forecasts.

Bloomberg Intelligence's Geetha Ranganathan told Yahoo Finance that the Q4 outlook is exactly the sign investors feared: softer engagement finally showing up in revenue growth. Netflix has been fighting that narrative for months.

"We continue to believe Netflix has significant headspace to push monetization of its leading SVOD scale, which should lead to compounding profits for years to come." — Robert Fishman, Analyst, MoffettNathanson

That's the bull case in a sentence, and as Variety reported, it rests on scale. Netflix has more than 325 million global subscribers, and management says this year's price increases landed in line with past ones.

The stock has now fallen about 48% from its June 2025 record high and is down more than 25% this year. Plenty of bad news is already in the price, which is why the target range of $65 to $90 is worth a look. At $65.04, Netflix sits at the very bottom of it.

The bear case is less about this quarter than about where viewers are going. New Street Research's Dan Salmon warned in an Oct. 20 note that Netflix is largely absent from the fastest-growing corners of video, namely mobile and short-form, where YouTube, TikTok and Instagram keep taking time.

Management's response so far has been internal. Netflix cut 6% of its workforce, about 1,000 jobs, last week and named former Disney executive Peter Rice as chief content officer, replacing Bela Bajaria. Co-CEO Ted Sarandos said on the call that "we could do better." Gaming, once pitched as a growth driver, barely got a mention.

For investors, the next few months come down to three things: whether ad revenue stabilizes around $2.7 billion, whether U.S. engagement turns up after the leadership shake-up, and whether Netflix finds a real answer to short-form video.

Anyone watching the name should pay close attention to the ad commentary in January. A clean reset would make this cut look like a one-time rollout hiccup. Another trim would suggest the problem is bigger than timing.

Bottom line: Netflix is still earning more money than ever, but the market is now pricing the growth story, not the profits.