Netflix slides 5% as profit surge fails to mask slowing growth, ad forecast cut

Netflix shares fell roughly 5% on Wednesday after the company’s tepid profit and advertising outlook deepened investor concerns about slowing viewership and revenue growth, overshadowing a stronger-than-expected third-quarter profit.

The stock has declined more than 26% this year, and if current losses hold, the streaming giant is set to shed about US$13.4 billion in market value, according to Business Times.

Netflix posted one of its most profitable quarters, with earnings per share up 49% and a 34.6% operating margin, Seeking Alpha reported. Yet the stock fell to a 2026 low.

Revenue rose 11.8% to US$12.87 billion in the third quarter, in line with Wall Street estimates but the slowest increase in nearly three years, Business Times reported. The company also lowered its advertising forecast for 2026 to roughly US$2.7 billion, from about US$3 billion projected earlier.

The company had projected a slowdown in fourth-quarter revenue growth, TheWrap reported.

**Leadership shake-up and competitive pressures**

The latest results came days after Netflix fired Chief Content Officer Bela Bajaria, film chief Dan Lin, and 6% of its total workforce — its largest cuts since 2022, TheWrap reported. Business Times confirmed the departures, noting the company replaced Bajaria and said Lin was departing.

The cuts follow continued concerns about engagement growth, exacerbated by Netflix’s failed pursuit of Warner Bros. Discovery’s studio and streaming earlier this year and increased competition from YouTube, TheWrap reported. Business Times noted that as viewers shift toward free, user-generated platforms such as YouTube and TikTok, Netflix is contending with changing preferences in favour of short-form video over premium content.

**Analyst reactions: mixed but cautious**

More than 20 brokerages have lowered their price targets on the stock following the results, according to LSEG data cited by Business Times.

“Netflix remains a well-oiled, highly profitable machine, but is focused on too many unwanted distractions,” PP Foresight analyst Paolo Pescatore told TheWrap. “The company needs to get back to basics and focus on compelling content, particularly after a year without a major breakout hit. The recent layoffs signal a broader reset.”

UBS analyst John Hodulik maintained a buy rating but cut the firm’s price target from $115 to $110, citing softer guidance and continued engagement headwinds. However, he said the company’s “fundamental positioning remains intact.”

Guggenheim analyst Michael Morris also maintained a buy rating but cut his price target from $80 to $78. He said a more impactful content slate is “non-negotiable for renewed investor interest.”

Seaport Research analyst David Joyce cut his price target from $90 to $85 due to “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 maintained a buy rating with a $85 price target. He expects investor sentiment to remain muted until viewing hours inflect.

Deutsche Bank analyst Bryan Kraft, who has a buy rating and $93 price target, said the earnings report didn’t reveal any incremental negative news other than the operational delay for some elements of its advertising strategy. He called the market’s reaction “overly punitive.”

William Blair analyst Ralph Schackart maintained an outperform rating, noting the underlying subscription business remains healthy. “Unfortunately, this quarter did not give the bears a reason to pull back on their growth concerns,” he said.

TD Cowen analyst John Blackledge, who maintained a buy rating with a price target of $100, said the long-term opportunity remains significant given Netflix’s multi-year lead in building a global streaming platform.

**Management acknowledges challenges**

In a post-earnings call, Co-CEO Ted Sarandos acknowledged that the company “could do better,” Business Times reported. He said Netflix plans to focus on its core business of producing quality TV shows and movies to make the service a must-have, and the recent executive shakeup was a step toward that goal.

BofA Global Research analysts said the leadership change and layoffs were “a signal that management is focused on improving content output and creative hit rates,” as reported by Business Times.

**Valuation and outlook**

Netflix trades at nearly 18.28 times expected earnings over the next 12 months, compared with 14.76 times for Walt Disney and 6.26 times for Comcast, Business Times reported.

“Growth has clearly slowed at Netflix,” Evercore ISI analysts said in a note, attributing the softness to market maturity, consistent competition, and content mis-execution, as reported by Business Times.

Analysts across multiple brokerages expect most challenges to be addressable, but several noted it could take several quarters to see the benefit of Netflix’s strategic changes. “We believe the company will solve its near-term content concern at some point in 2027,” Schackart added.