Netflix cuts its 2026 ad revenue forecast by 10% to $2.7 billion; shares fall 5% after hours

Netflix reported third-quarter revenue of $12.874 billion on Tuesday, up 12% from a year earlier and, in the company's words, in line with its own forecast. CNBC reported the shares were down about 5% in after-hours trading, with revenue matching Wall Street's expectations. The reason for the drop sits in the outlook, not the quarter.

The number behind the number: advertising

In its shareholder letter, filed with the SEC, Netflix says it now expects about $2.7 billion of advertising revenue in 2026, against approximately $3 billion previously. It blames a "slightly slower than expected rollout of some ad product capabilities." That is a cut of about $300 million, or 10%.

It is small against a $51.1 billion revenue year, roughly 0.6%, and the company says subscription revenue is running ahead of plan. Ads are only about 5% of 2026 revenue ($2.7 billion of $51.1 billion). But advertising is the part of the story that was supposed to carry growth as price increases fade, which is why a miss there gets noticed.

Growth is slowing, margin is not

Source: Netflix shareholder letter. Revenue growth has slowed from 17.2% to 11.8% in four quarters, and the company's own fourth-quarter forecast implies 11.5%. Profit is growing much faster: third-quarter operating income was $4.459 billion, up 37%, and diluted earnings per share were $0.87 against $0.59 a year ago.

Netflix says the margin beat its forecast "primarily due to the timing of expenses," meaning some spending moved into the fourth quarter. That is why the fourth-quarter margin guide drops to 26.0%, which includes about 120 basis points from the job cuts we reported last week. For the full year the company expects a 31.5% margin, up from 29.5% in 2025.

Cash and buybacks

Netflix bought back 63.9 million shares for $4.8 billion in the quarter, its largest repurchase quarter ever, which works out to an average of about $75 a share (our arithmetic). It has $22.3 billion of authorization left. Free cash flow was $2.9 billion, but the 2026 free cash flow forecast was trimmed to about $12.0 billion from $12.5 billion, which the company attributes mainly to the timing of a real estate transaction expected to close in the fourth quarter. Gross debt ended the quarter at $15.3 billion against $8.2 billion of cash.

Who it hits

Ad buyers and media agencies are the group to watch. A slower rollout of ad products means fewer targeting and measurement options for brands planning holiday budgets on the ad-supported tier. For investors, the question for the next report is whether ad revenue reaccelerates in the fourth quarter or the slip carries into 2027, since subscription price increases alone are producing slower growth each quarter.

Netflix also pointed to a live-events slate through year-end, including three NFL games and the Tyson Fury vs. Anthony Joshua fight; our fight coverage is at /fights.

Sources: Netflix shareholder letter (Form 8-K, Exhibit 99.1) on SEC EDGAR; CNBC. After-hours moves are preliminary and can change at the open. This is market information, not investment advice.