No Breakout Hit and an Ad Shortfall: What Netflix Needs to Prove Next
Netflix beat on profits but Wall Street is calling it a "show me" story, pointing to a missing global hit, a stumbling ad rollout, and slowing revenue growth as three tests the streamer must pass before January.
Shares of Netflix (NASDAQ:NFLX | NFLX Price Prediction) fell 6.2% in premarket trading to $64.45 after the company’s third-quarter report. The drop adds to a year-to-date decline of 31.3% and a one-year slide of 48.0%. Profits came in strong, but investors want proof in two areas: hit content and advertising.
Profits Beat While Ads and Growth Fell Short
GAAP EPS of $0.87 exceeded the $0.82 estimate. Revenue of $12.87 billion came in just under expectations. Operating income rose 37.26% to $4.46 billion. The weak spot was advertising. Netflix lowered its 2026 ad revenue outlook to about $2.70 billion from around $3.00 billion because its ad products rolled out more slowly than planned. The ad tier’s launch in 15 new countries now starts in March 2027. Management said on the call: “We are currently a bit behind our aggressive target for the year. We’re still growing our ads business over 80% this year.”
On Bloomberg Businessweek, Ed Ludlow said advertising came in $300 million below what the company expected. He also noted that Netflix has struggled to retain viewers for later seasons of its hit shows. On the top line, he was frank: “Sales growth is going to decline for a fourth straight quarter. So whatever they’re doing to change things, it’s not happening yet.”
On CNBC’s Fast Money, LightShed Partners co-founder Rich Greenfield said revenue growth slowing from the high teens to 12% raises concerns of secular decline, meaning a long-term slowdown rather than a temporary dip. He called Netflix a “show me” story. Fast Money also pointed to light guidance for the current quarter: fourth-quarter revenue of $13.44 billion. Co-CEO Greg Peters raised the idea of add-on subscriptions during the earnings call.
No Global Hit, and Now a Management Shakeup
Greenfield summed up the core problem: “Netflix flourishes when they have breakout hits. And there has been no breakout global hit during this calendar year. That’s a fact. They acknowledged it on the call. That’s why they made management changes.”
Management agreed: “We had some really solid doubles and triples this year, but the other territories count on some of those titles being home runs so that they travel around the world.” Peter Rice is joining as chief content officer, and Reuters reported that co-CEO Ted Sarandos said, “we could do better.” Outside the U.S., India’s viewing hours grew 24%.
Disney and Warner Bros. Discovery Are Gaining Ground
At Walt Disney (NYSE:DIS), streaming subscription (SVOD) revenue grew 11% to $5.532 billion, and combined Disney+ and Hulu operating income more than doubled to $712 million. Disney trades at about 16 times earnings, compared with 26 for Netflix. Disney also warned of weaker domestic streaming advertising, a sign that ad pressure goes beyond Netflix. Greenfield reasoned Netflix still has pricing power on both its ad-supported and ad-free plans. He compared Netflix’s $8.99 ad tier with the $12.99 Disney+ and Hulu bundle.
Netflix collected a $2.80 billion termination fee after its deal with Warner Bros. Discovery (NASDAQ:WBD) fell apart. About 40% of global HBO Max subscribers now use its ad-supported tier, and its Harry Potter series premieres on Christmas Day 2026. That lands on the same day as Netflix’s NFL doubleheader.
Three Tests That Will Decide Netflix’s Next Move
- A major global hit: The Further Misadventures of Cliff Booth and the 2027 Narnia film are the leading candidates.
- Advertising getting back on plan: New programmatic deals, which let advertisers buy ad slots through automated platforms, and the March 2027 country launches need to close the gap.
- Revenue growth picking up again: Full-year 2026 guidance calls for $51.1 billion, up 13%, and Netflix will give 2027 guidance in January.
Netflix has room to keep investing. It bought back $4.8 billion of stock last quarter and has $22.3 billion left under its authorization. Still, rebuilding investor confidence requires more than higher margins. Netflix gets its next big test in January: a global hit plus an ad business back on track would resume growth, while missing on both would keep the pressure on.
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Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.
Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community.
Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.
Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, moderating workshop sessions at regional conventions.
