Key Takeaways
- Netflix shares fell 4% today after it guided fourth-quarter revenue to $13.44 billion, short of the $13.51 billion consensus, and cut its 2026 ad revenue outlook to about $2.7 billion from about $3 billion.
- The ad cut is small next to Netflix’s $51.1 billion revenue forecast for 2026. The real concern is growth that has slowed every quarter this year.
- Co-CEO Ted Sarandos said Netflix doesn’t need a new strategy but does need “better execution in the U.S.”
- Netflix traded just under 20x forward earnings at Tuesday’s close, far below its five-year average of 32.6x. Its ad launch in 12 new countries in March is the next test.
Netflix (NFLX) shares are down 4% this afternoon after the streamer guided fourth-quarter revenue below Wall Street’s estimates and cut its 2026 ad revenue outlook.
The third quarter itself was solid. Revenue grew 12% to $12.9 billion, in line with Netflix’s own forecast, and diluted EPS of $0.87 beat the $0.82 analysts expected.
The outlook was another story. Netflix guided Q4 revenue to $13.44 billion, short of the $13.51 billion consensus. It now expects about $2.7 billion of ad revenue this year, down from roughly $3 billion, because some of its ad features are rolling out more slowly than planned.
Co-CEO Ted Sarandos was blunt about it on the earnings call:
“There is no need for a fundamental shift in the strategy. We do need better execution in the U.S.“
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A small miss on a slowing business
The $300 million ad cut is less than 1% of the $51.1 billion Netflix expects to bring in this year, and stronger subscription revenue made up most of it, so full-year revenue guidance ended up just 0.2% below the midpoint of the old forecast.
The bigger worry is the trend: revenue growth has slowed every quarter this year, from 16.2% in Q1 to 11.8% in Q3, with the Q4 guide calling for 11.5%, and analysts expect it to keep cooling…
Consensus calls for about 11% growth in 2027 and 10% in 2028. Today’s cut is too small to move those estimates much. But it leaves 2027 leaning harder on the ad tier’s launch in 15 new countries. Netflix set a date for nine new ad markets last month, and that March 2027 launch now covers 12.
Analysts are cooling on the stock too: Needham downgraded it to Hold today, and Barclays cut its price target to $65 from $70.
Much of this is already priced in
Even before today’s drop, Netflix traded at 19.8x forward earnings, far below its five-year average of 32.6x…
Today’s drop takes it closer to 18x.
I think the slower ad rollout just pushes the ad payoff out a few quarters. At this multiple, investors are paying a lot less than usual for a business that still expects 13% revenue growth and a 31.5% operating margin this year.
Of course, if US engagement doesn’t pick up, the multiple has room to fall, since it bottomed at 15.5x in May 2022. The Q4 report early next year and the March ad launches are the next tests.
So what is Netflix stock actually worth?
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