Netflix Stock Falls to Two-Year Low After Ad Forecast Cut Offsets an EPS Beat

Netflix reported third quarter earnings after the close Tuesday that beat profit estimates but cut its full year advertising and revenue forecasts. By Wednesday the shares were down about 7% in premarket trading, to their lowest level since August 2024, according to Variety.

The headline number was clean on the surface. Netflix earned $0.87 per diluted share for the three months ended September 30, beating the $0.82 consensus from LSEG, and revenue of $12.87 billion matched the Street view. But the guidance the company tucked behind the beat is what moved the stock, and it moved it down.

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Netflix now expects $51.1 billion in full year 2026 revenue, a 13% gain over the prior year but a trim from the $51.0 billion to $51.4 billion range it offered three months ago, CNBC reported. The more visible cut was in advertising. The company guided 2026 ad sales to $2.7 billion, $300 million lighter than its earlier forecast, because of a slower than expected rollout of some ad product capabilities, Variety reported. Morgan Stanley analysts said in a Wednesday note that advertising was tracking about $300 million light for the year, describing the delays as months rather than years.

The market reaction was to take the forecast over the beat. CNBC reported the stock was down about 7% early Wednesday, and Variety put the premarket price below $64, the lowest point since August 2024. That is a sharp repricing for a business whose shares last closed above $90 on May 4, 2026, at $91.02, per Nasdaq daily history, and it makes the current move a test of investor patience rather than a simple earnings selloff.

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Wall Street largely told clients to look past the number. Bank of America's Jessica Reif Ehrlich kept a buy rating and a $90 price target, calling valuation undemanding at below 20 times earnings for a company with more than 300 million paying subscribers globally. She also pointed to the balance sheet: about one times gross leverage and roughly $4.8 billion in buybacks during the third quarter. Barclays analyst Kannan Venkateshwar said the market reaction was overly punitive, though directionally fair given the guidance cut, and said pricing and membership trends remain strong.

The bear case is about structure, not this quarter. New Street Research's Dan Salmon said in an October 20 note that the Street should remain skeptical of a long-term strategy that doubles down on premium TV and films while Netflix stays largely absent from the fastest growing parts of video entertainment, including mobile and short form on platforms like YouTube and TikTok. Pivotal Research's Jeff Wlodarczak cut his year end 2026 target price by $5, to $65, citing higher programming costs and lower subscriber forecasts as short form entertainment pressures streaming the same way streaming once pressed traditional pay TV.

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The setup that follows is a genuine tug of war. The bull side rests on subscriber scale, margin expansion and a growing ad revenue stream, with management reiterating a commitment to double digit revenue growth. The bear side rests on engagement and content momentum, which is why the company dismissed content chief Bela Bajaria and brought in Peter Rice amid a broader content leadership overhaul, and laid off roughly 1,000 workers, about 6% of headcount, ahead of the report.

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