Netflix (NFLX) shares fell about 6% in after-hours trading on Tuesday, October 20, after the streamer cut its 2026 advertising forecast and guided fourth-quarter profit below Wall Street estimates. The stock had closed the regular session at $68.69.
Netflix put most of its third-quarter profit beat down to the timing of expenses, and its fourth-quarter guide carries a one-time layoff charge. Those two items weigh on the profit outlook, but the full-year margin target held. The bigger change is to growth: Netflix cut its 2026 ad forecast by $300 million, about 0.6% of this year’s expected revenue, and the shares lost roughly $17 billion in market value after the report.
Netflix’s Ad Business Runs Behind Schedule
Netflix now expects about $2.7 billion in ad revenue for 2026, down from roughly $3 billion, and blamed a slower rollout of some ad products. That $3 billion target sat at the center of the case for owning the stock earlier this year. Co-CEO Greg Peters said Netflix had set “big growth targets for our ads business this year”, and that ads are still growing more than 80% in 2026.
Third-quarter operating margin reached 34.6% against a 33.2% forecast, and Netflix said the beat came primarily from the timing of expenses. The fourth-quarter margin guide of 26.0% also includes about 120 basis points (roughly $161 million) of costs from the layoffs. Both help explain why Netflix guided fourth-quarter net income to $2.79 billion, below the $3.07 billion analysts expected, according to Reuters, though Netflix didn’t say how much of that gap each one accounts for. The full-year operating margin target stayed at 31.5%, including about 30 basis points from the layoffs.
Netflix’s Growth Problem Is the Bigger One
Revenue growth has slowed every quarter this year: 16.2% in the first quarter, 13.4% in the second, and 11.8% in the third, which Reuters called the slowest pace in nearly three years. The fourth-quarter guide of $13.44 billion works out to 11.5%.
The Street hasn’t caught up yet. Its 2026 revenue estimate of $51.21 billion still sits above Netflix’s new $51.1 billion forecast, and it pencils in 11.2% growth for 2027 and 10.1% for 2028.
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What Netflix’s 19.8x Multiple Already Prices
Netflix trades at 19.8 times forward earnings, against a five-year average of 32.6x. The only time it traded much lower was 2022, when the multiple bottomed at 15.5x.
That discount prices in far more than a missed ad target. The cash story also holds up: Netflix trimmed its 2026 free cash flow guide to $12.0 billion from $12.5 billion, tied to a real estate deal closing in the fourth quarter, and bought back 63.9 million shares for $4.8 billion in the third quarter, its biggest buyback quarter on record. That’s an average of about $75 a share, above where the stock closed Tuesday.
What Netflix Stock Is Worth at 20x
About $91 by the end of 2028, even with growth slowing further. I set revenue growth at 10% a year through 2029, below the Street’s 11.2% for 2027, because the ad delays argue against giving Netflix the benefit of the doubt. I put operating margins at 33%, between this year’s 31.5% guide and the third quarter’s 34.6%, since the layoffs give management room to keep expanding. And I held the exit multiple at 20x, roughly where it sits now.
That gives a target of $91.38, a 33% gain from $68.69, or 13.9% a year. The model starts from Tuesday’s close, so buying after the after-hours drop improves those returns.
Conclusion
The sell-off prices in a growth problem bigger than anything in the guidance. My model points to about 14% a year with growth at 10%, below what the Street expects, but only if the multiple holds near 20x. Keep the same earnings and drop the multiple to the 2022 low of 15.5x, and the target falls to about $71, close to where the stock closed Tuesday. That’s a multiple-only scenario, and weaker earnings would push the target lower still.
So what is Netflix stock actually worth?
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Disclaimer:
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