Netflix (NFLX.US) Q3 revenue up 12% year-over-year; full-year advertising revenue forecast cut; shares fall over 5% after hours.

Netflix (NFLX.US) Q3 revenue up 12% year-over-year; full-year advertising revenue forecast cut; shares fall over 5% after hours. After the U.S. market close on Tuesday, streaming giant Netflix (NFLX.US) reported its third-quarter 2026 financial results, sending shares down more than 5% in after-hours trading. Driven by subscriber growth, membership price increases, and higher advertising revenue, the company's quarterly revenue rose nearly 12% year-over-year, net profit surged 44% year-over-year, and operating margin expanded further. However, because the rollout of certain advertising product features progressed slower than expected, Netflix cut its full-year advertising revenue forecast and slightly lowered its full-year revenue outlook. The results showed that Netflix's third-quarter revenue reached $12.874 billion, up 11.8% from $11.510 billion a year earlier and up about 2.5% from $12.560 billion in the second quarter, in line with the company's prior expectations. Excluding the impact of foreign exchange movements and related hedging, revenue grew about 11% year-over-year. In the third quarter, Netflix's operating profit reached $4.459 billion, up about 37% from $3.248 billion a year earlier; operating margin rose to 34.6% from 28.2% a year earlier, an increase of 6.4 percentage points, above the company's prior expectations. Netflix said the better-than-expected third-quarter operating profit and margin performance was mainly due to changes in the timing of certain expense recognition and revenue coming in slightly above expectations. On the earnings side, Netflix's third-quarter net profit reached $3.664 billion, up about 44% from $2.547 billion a year earlier and up about 8% from $3.401 billion in the second quarter; diluted earnings per share were $0.87, up about 49% from $0.59 a year earlier. The company said third-quarter revenue growth was mainly driven by an increase in membership numbers, higher subscription prices, and growth in advertising revenue, while foreign exchange movements also provided some benefit after excluding the impact of hedging. On the user side, Netflix noted that member retention across all global regions remained healthy in the third quarter, with churn rates in both the U.S. and global markets improving year-over-year and performing better than the company's prior expectations. Advertising business expansion slower than expected; full-year revenue target cut from $3 billion to $2.7 billion Despite solid third-quarter revenue and profit performance, the expansion of Netflix's advertising business fell short of the company's prior expectations. Netflix said in its earnings report that it expects full-year 2026 advertising revenue of about $2.7 billion, below its previous estimate of about $3 billion, a reduction of about 10%. The company explained that the cut to its advertising revenue forecast was mainly due to the rollout of certain advertising product features progressing slightly slower than originally planned, while subscription revenue growth was actually better than previously expected. At the same time, Netflix continues to expand the reach of its proprietary advertising technology platform, Netflix Ads Suite. In the third quarter, the company expanded programmatic advertising buying channels through global connected TV advertising marketplace agreements and established new partnerships with Latin American e-commerce platform MercadoLibre and EMEA advertising technology company AdForm. Netflix also plans to further improve measurement capabilities in its demand-side platform, including ad reach, impression frequency, and attribution analysis, to improve advertising efficiency for advertisers. On market expansion, Netflix announced plans to roll out its ad-supported subscription plan to another 15 countries in 2027. The first batch of new markets is expected to launch in March 2027, including nine countries in the EMEA region, as well as Colombia, Peru, and New Zealand. Revenue grows double digits in all four regions; Latin America leads growth By region, Netflix's revenue in all four major markets achieved double-digit year-over-year growth in the third quarter, with Latin America growing fastest. Revenue in the U.S. and Canada (UCAN) reached $5.628 billion in the third quarter, up 11% year-over-year, remaining the company's largest revenue source. Revenue in Europe, Middle East, and Africa (EMEA) reached $4.107 billion, up 11% year-over-year, or 9% excluding the impact of foreign exchange. Revenue in Latin America (LATAM) reached $1.603 billion, up 17% year-over-year, the fastest-growing of the four regions. However, excluding the impact of foreign exchange, revenue in the region grew 12% year-over-year. Revenue in Asia-Pacific (APAC) reached $1.537 billion, up 12% year-over-year, or 15% on a constant-currency basis. On content, Netflix said India stood out in the third quarter. Driven by its first daily-updated reality show "Lock Upp" and other local original content, total viewing hours in India grew 24% year-over-year in the third quarter, with viewing hours per member rising by a low-to-mid single-digit percentage. At the same time, through its first transaction-based membership loyalty bundle with Indian e-commerce platform Flipkart, Netflix drove record net paid member additions in India in the third quarter. On a constant-currency basis, Netflix's third-quarter revenue in India grew about 18% year-over-year. Netflix noted that non-English content's share of total viewing on the platform has risen from less than 10% a decade ago to more than one-third today, showing that international original content is becoming an important force driving user engagement and global business growth. Third-quarter free cash flow reaches $2.884 billion; share buybacks hit record On cash flow, Netflix generated $3.162 billion in cash from operating activities in the third quarter, up from $2.825 billion a year earlier. Third-quarter free cash flow reached $2.884 billion, up about 8% from $2.660 billion a year earlier and up sharply from $1.525 billion in the second quarter. However, Netflix lowered its full-year 2026 free cash flow forecast to about $12 billion from $12.5 billion previously, mainly due to the expected completion of a real estate transaction in the fourth quarter. The company also maintained its expectation that the ratio of full-year cash content spending to content amortization expense would be about 1.1x. On capital returns, Netflix spent about $4.8 billion to repurchase 63.9 million shares in the third quarter, a record for quarterly share buybacks. As of the end of the third quarter, the company had about $22.3 billion remaining under its existing share repurchase authorization. On the balance sheet, as of the end of September, Netflix held about $8.2 billion in cash and cash equivalents and about $15.3 billion in total debt. The company said it will continue to prioritize investment in its core business and pursue growth through selective acquisitions, while maintaining a healthy balance sheet and ample liquidity and continuing to return excess cash to shareholders through share buybacks. Full-year revenue guidance slightly cut to $51.1 billion; fourth-quarter margin expected to decline Looking ahead to the fourth quarter, Netflix expects revenue of $13.442 billion, up 11.5% year-over-year, mainly driven by an increase in membership numbers, higher subscription prices, and growth in advertising revenue. The company expects fourth-quarter operating profit of $3.5 billion and an operating margin of 26.0%, above 24.5% a year earlier but well below 34.6% in the third quarter. Netflix said the fourth-quarter margin is expected to be affected by recently announced layoffs, with related costs expected to have a negative impact of about 1.2 percentage points on the quarter's operating margin. For the full year, Netflix expects 2026 revenue of about $51.1 billion, up 13% year-over-year, about 0.2% below the midpoint of its previous full-year revenue forecast range. The company expects a full-year 2026 operating margin of 31.5%, above 29.5% in 2025. The latest guidance already includes a negative impact of about 0.3 percentage points on the full-year operating margin from fourth-quarter layoffs. Based on the above expectations, Netflix expects full-year 2026 operating profit to grow more than 20% year-over-year. Continued investment in original content and live sports to compete for global viewing time On content strategy, Netflix said it will continue to expand its supply of original films and TV series, third-party licensed content, and live sports to increase user engagement and enhance member retention. The company noted that Netflix's global audience is now approaching 1 billion people, giving it an advantage in working with film and TV production companies, television networks, and creators. In the third quarter, Netflix continued to expand third-party content licensing partnerships, including a new content licensing agreement with The Walt Disney Company and, in France, a partnership with local broadcaster TF1 to bring more local series, films, news, and sports programming to the platform. At the same time, Netflix said user reaction to its 2026 membership price adjustments has been broadly consistent with previous price increases and in line with company expectations, reflecting that platform user engagement remains healthy. However, the company also acknowledged that some investors are concerned about the platform's viewing time growth and said it will continue to push for accelerated growth in viewing time. Looking ahead to the fourth quarter, Netflix plans to release multiple original series and films, including "The Further Mis-Adventures of Cliff Booth," starring Brad Pitt and directed by David Fincher, as well as new seasons of hit series such as "The Diplomat" and "Lupin." On live sports, Netflix plans to air three NFL games in the fourth quarter, including one game on the eve of Thanksgiving and two games on Christmas Day, and will also livestream the boxing match between Tyson Fury and Anthony Joshua. Netflix said it will continue to drive member growth, improve retention, and expand long-term profitability through high-quality original content, product and technology innovation, and improved commercialization capabilities.