Netflix Shares Tumble on Weak Forecast, Amid Growing Competition
Streaming giant misses revenue and earnings projections, plans to reduce viewing data disclosures as Wall Street eyes slowing growth.
Netflix shares dropped nearly 8% in after-hours trading following the release of third-quarter revenue and earnings projections that fell below Wall Street targets. The company also announced it would decrease the frequency of its viewing hours reports, signaling a shift in focus as it navigates a competitive media landscape and seeks new growth avenues.
The company projected third-quarter revenue of $12.86 billion and diluted earnings per share of 82 cents, while analysts had anticipated $13 billion in revenue and diluted EPS of 84 cents, according to LSEG.
“Our financial performance remains solid and we’re on track to meet our objectives for the year,” Netflix stated in its quarterly letter to shareholders. For the previous quarter, the company reported revenue of $12.56 billion and earnings per share of 80 cents, aligning with analyst estimates. Notable content during that period included the crime drama “I Will Find You” and the animated feature “Swapped.”
Analysts interpret the cautious projections as indicative of a maturing growth phase rather than a sudden business downturn. "They would reinforce the view that Netflix remains strong but is entering a steadier phase of growth with considerably less room for error given the always-high expectations," said Paolo Pescatore, an analyst at PP Foresight.
In a move to emphasize its primary financial metrics, Netflix will shift its biannual viewing-hours report to an annual release starting in January 2027. This follows the company's decision in 2025 to cease publishing quarterly subscriber numbers.
Netflix faces intensifying competition from traditional media companies like Walt Disney, the burgeoning presence of YouTube in living rooms, and mobile platforms such as TikTok. Prior to this earnings report, the company had seen its market value decrease significantly as investors grew concerned about its ability to attract new customers and boost revenue.
To address these challenges, Netflix is developing an advertising business and offering video games, initiatives that are still in their early stages. The company reiterated its forecast that advertising revenue would reach $3 billion by the end of the year, expecting increased advertising dollars from live events, including an expanded NFL slate.
Netflix reported that engagement, measured by viewing time, remains healthy, with viewing hours increasing by 2% in the first half of the year, up from 1.5% in the same period a year ago. The company is also leveraging technology, including generative artificial intelligence, to enhance its operations. AI is being used in approximately 300 titles, primarily in post-production, according to the company.