Netflix Issues Weak Outlook Despite Third-Quarter Earnings Beat

06:29 AM EDT, 10/21/2026 (MT Newswires) -- Netflix (NFLX) shares fell early Wednesday after the streaming giant issued a fourth-quarter outlook below Wall Street's estimates, even though it posted better-than-expected earnings in the previous three-month period. The company anticipates earnings of $0.67 a share and revenue of $13.44 billion for the ongoing quarter, it said in a late Tuesday shareholder letter. The current consensus on FactSet is for GAAP EPS of $0.70 and sales of $13.47 billion. The stock dropped 6.3% in the most recent premarket activity. It has lost 27% so far this year. The company pegged its operating margin at 26%, including a 120-basis-point headwind related to its recently announced employee layoffs. Earlier in October, several media outlets reported that Netflix plans to trim 6% of its workforce, or about 1,000 jobs. "These organizational changes enable us to continue to aggressively invest in high impact areas to improve our service, and drive growth and innovation," the company said Tuesday. For the September quarter, the streaming giant's EPS improved to $0.87 from $0.59 the year before, surpassing the Street's view for $0.82. Revenue rose 12% to $12.87 billion, in line with the average analyst estimate on FactSet. The top line mainly benefited from subscription revenue, reflecting membership and pricing gains, an increase in advertising revenue and foreign-exchange tailwinds, according to Netflix. The company's membership growth continued to see "healthy" retention in every region, while churn improved globally and in the US on a yearly basis, coming in better than expectations, it said. Operating margin came in at 34.6%, compared with 28.2% in the prior-year quarter. Netflix acknowledged investor concerns surrounding its view hours growth and said it aims to accelerate it by "relentlessly focusing" and executing its ongoing strategy to deliver more entertainment value, enhance its services and improve monetization. The company said responses by members to its price hikes this year have been "consistent" with previous changes and its own expectations. This indicates that the firm's engagement, which comprises quantity, quality and viewing variety, "remains healthy," Netflix added. In an emailed client note last week, Wedbush Securities said Netflix is making significant changes to address slowing viewer engagement and revive growth, though the benefits may take time to materialize. The brokerage said in its note that engagement remains central to the bear case for Netflix. However, despite modestly declining engagement as consumers spend more time on YouTube and short-form social media, Wedbush believes Netflix remains a "compelling" destination for advertisers. For 2026, the streaming giant now forecasts revenue of $51.1 billion, 0.2% below the midpoint of its previous guidance range. The company expects advertising revenue of roughly $2.7 billion for the current year, down from its prior outlook of around $3 billion, due to a "slightly" slower-than-expected launch of some ad product capabilities. The Street is looking for overall sales of $51.18 billion for the year. Amazon (AMZN), which owns the Amazon Prime Video streaming service, is scheduled to release its latest financial results later this month. Disney+ parent company Walt Disney (DIS) and Apple TV owner Apple (AAPL) are expected to post their quarterly earnings in November.