Netflix issues weak fourth-quarter forecast, shares drop

LOS ANGELES, Oct 20 : Netflix disclosed weaker-than-anticipated profit projections and reduced its 2026 advertising estimate on Tuesday, following the removal of 6% of its workforce and the replacement of two top programming leaders. The company's shares declined nearly 6% to $64.66 in after-hours trading, having fallen more than 40% over the past year before the earnings report.

Co-CEO Ted Sarandos stated that Netflix intends to concentrate on producing high-quality TV shows and films to make the platform an essential service, with the recent personnel changes as part of that endeavor. Sarandos acknowledged during a post-earnings video call, "We could do better." Third-quarter revenue climbed 11.8% to $12.87 billion, in line with Wall Street predictions, but the smallest gain in nearly three years.

Netflix forecasted fourth-quarter net income of $2.79 billion and EPS of 67 cents, below the average analyst estimate of $3.07 billion and 73 cents. The company decreased its advertising forecast for 2026 to approximately $2.7 billion, lower than the estimated $3 billion. Certain ad product features launched marginally behind schedule, executives disclosed in their quarterly letter to shareholders.

Although Netflix, which revolutionized Hollywood two decades ago, now contends with a growth in viewership on YouTube and TikTok, the firm remains a highly profitable and efficient operation. However, it is overly occupied with unnecessary diversions, according to PP Foresight analyst Paolo Pescatore, who emphasized that Netflix needs to return to its core focus on captivating content.

The company aims to broaden its offerings through licensing more third-party content in its earnings report. For the third quarter, earnings per share were 87 cents, surpassing the 82-cent average forecast of surveyed analysts. New releases during the quarter included "Monster: The Lizzie Borden Story," the second season of "The Gentlemen," the final episode of "Outer Banks," and a revival of "Little House on the Prairie."

Last week, Netflix dismissed 1,000 workers, or roughly 6% of its employees, and replaced Chief Creative Officer Bela Bajaria and film chief Dan Lin, indicating a reset of its programming strategy. Peter Rice, a former Disney and Fox executive, was appointed to replace Bajaria and oversee the film division until a replacement for Lin is chosen.

Sarandos asserted on Tuesday, "We want Netflix to always be the place where they love to create their best work." Netflix experienced monthly subscriber declines in the US throughout 2026, with no net additions reported for any month up to September, according to data from analytics firm Antenna. However, Netflix contends that the Antenna figures are not indicative of its business performance.

Sarandos acknowledged there is no need for a fundamental strategy shift but added, "We do need better execution in the US."