Netflix Slides on Weak Outlook Despite Record Profit and Margins

Netflix shares dropped roughly 5% on Wednesday (Oct 21) as the company’s tepid outlook for advertising revenue and fourth-quarter growth overshadowed a record quarterly profit and operating margin, according to Businesstimes.

The stock has declined more than 26% this year and, if current losses hold, is set to shed about US$13.4 billion in market value, Businesstimes reported. TheWrap noted that Netflix shares are down 46% over the past year and 27% over the past six months.

The streaming giant posted third-quarter revenue of US$12.87 billion, up 11.8% — the slowest increase in nearly three years — and in line with Wall Street estimates, Businesstimes reported. Profit and margins hit records: earnings per share rose 49% and operating margin reached 34.6%, according to Seeking Alpha. However, Netflix lowered its advertising revenue forecast for 2026 to roughly US$2.7 billion from about US$3 billion previously, Businesstimes reported.

**Mounting Headwinds**

Netflix faces stiff competition from free, ad-supported platforms such as YouTube and TikTok, as well as from rivals Amazon and Disney, according to both TheWrap and Businesstimes. The company also lost a bidding war for Warner Bros Discovery’s studio and streaming assets earlier this year, both sources reported. Engagement growth has slowed, exacerbated by a lack of major breakout hits, TheWrap noted.

In response, Netflix recently fired Chief Content Officer Bela Bajaria and film chief Dan Lin, and cut 6% of its workforce — its largest layoffs since 2022, both sources reported. Co-CEO Ted Sarandos acknowledged the company “could do better” and said the moves are aimed at refocusing on core content production, Businesstimes reported. The company stopped disclosing subscriber numbers in 2025, Businesstimes noted.

**Analyst Reactions**

More than 20 brokerages lowered price targets on Netflix stock following the results, according to LSEG data cited by Businesstimes. Several analysts maintained buy ratings but cut their targets, as reported by TheWrap.

PP Foresight analyst Paolo Pescatore, quoted by TheWrap, said Netflix is a “well-oiled, highly profitable machine” but is focused on “too many unwanted distractions.” He added that the company needs to “rediscover its magic rather than chase every new opportunity.”

UBS analyst John Hodulik cut his price target to US$110 from US$115 but said Netflix’s “fundamental positioning remains intact, supported by industry-leading scale, a durable competitive moat and substantial monetization runway,” TheWrap reported.

Guggenheim analyst Michael Morris cut his target to US$78 from US$80, calling a more impactful content slate “non-negotiable for renewed investor interest,” according to TheWrap. Seaport Research analyst David Joyce lowered his target to US$85 from US$90, citing “delayed gratification” on advertising growth, but reiterated a buy rating.

Jefferies analyst John Colantuoni said the quarter’s results are “unlikely to be thesis changing” and expects a bullish story to crystallize in 2027, TheWrap reported. Deutsche Bank analyst Bryan Kraft called the market reaction “overly punitive, although directionally fair given the guidance cut.”

William Blair analyst Ralph Schackart maintained an outperform rating but noted the quarter “did not give the bears a reason to pull back on their growth concerns,” TheWrap reported. TD Cowen analyst John Blackledge kept a buy rating with a US$100 target, saying the long-term opportunity remains significant.

**Valuation and Outlook**

Netflix trades at about 18.3 times expected earnings over the next 12 months, compared with 14.8 times for Walt Disney and 6.3 times for Comcast, Businesstimes reported. Analysts expect most challenges to be addressable but noted that near-term catalysts are lacking. TheWrap reported that several analysts said it could take several quarters to see the benefit of Netflix’s strategic changes.