Netflix is recalibrating its financial expectations for 2026, lowering its anticipated advertising revenue from approximately $3 billion to $2.7 billion.
The revision followed the company’s third-quarter earnings report, which highlighted record-breaking share repurchases and a slowing rate of overall revenue growth. Since reaching a growth rate of 17.6% at the end of 2025, the company’s year-over-year revenue growth has decelerated every quarter.
While third-quarter revenue reached $12.87 billion, representing an 11.8% increase, the figure marked the slowest growth rate for the streaming giant in nearly three years. Despite the top-line deceleration, Netflix reported that operating margins rose to 34.6% from 28.2% in the same period a year ago. The company surpassed earnings expectations with an EPS of $0.87, exceeding the consensus estimate of $0.82.
The company’s ability to re-accelerate growth to 12% or higher rests on its upcoming slate of live events, led by its first-ever NFL broadcast on the eve of Thanksgiving.
Netflix leadership attributes the recent downward revision in advertising revenue to the delayed rollout of specific ad-product features. “We are currently a little behind our aggressive goals for the year,” Greg Peters said during the company’s earnings interview.
Ted Sarandos also said that the platform is not growing as quickly as the company desires, pointing to competition from Alphabet’s YouTube, which he identified as a direct rival for time spent on television screens. According to Sarandos, approximately 55% of YouTube viewer engagement currently occurs on television sets.
Despite the cooling growth metrics, Netflix continues to generate substantial cash. The company reported quarterly free cash flow of $2.88 billion, an 8.4% increase, and executed the largest share repurchase in its history, buying back $4.8 billion worth of stock, which accounts for 63.9 million shares. This buyback resulted in a 3.3% year-over-year reduction in diluted share count, and the company still holds $22.3 billion in remaining share repurchase authorization.
Operating income rose 37% to $4.46 billion, and Netflix maintained its 2026 operating margin target of between 29.5% and 31.5%. However, the company lowered its 2026 free cash flow forecast from $12.5 billion to approximately $12 billion, citing the impact of real estate transactions.
Looking ahead to the fourth quarter, Netflix provided an operating margin guidance of 26.0%, a figure that includes a 120-basis-point impact from the reduction of approximately 1,000 staff positions. The company expects fourth-quarter revenue to reach $13.44 billion, representing an 11.5% year-over-year increase, with an earnings per share (EPS) forecast of $0.67, falling short of the $0.73 estimate held by analysts.
The company’s long-term advertising strategy remains focused on global scale. Netflix plans to launch its ad-supported tier in 15 additional countries starting in March, aiming to capture further revenue opportunities in 2027. The company will release its next set of performance data during its January earnings announcement, which will provide the first concrete evidence of how the holiday season’s live sports programming impacted advertising engagement and total subscriber growth.
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