Netflix Q3 Forecast Misses Estimates but Engagement Remains Healthy

Netflix forecast third-quarter revenue and earnings on Thursday that fell short of Wall Street targets and said it would cut the frequency of its viewing-hours reports as the company seeks new avenues of growth. Shares of Netflix fell nearly 8.6% in after-hours trading to $67.99.

The company, led by Co-CEOs Ted Sarandos and Greg Peters, said it expected $12.86 billion in revenue from July through September and diluted earnings per share of 82 cents. Analysts had forecast $13 billion in revenue and diluted EPS of 84 cents, according to LSEG.

A Maturing Growth Story

After years of rapid subscriber gains, Netflix Inc. is working to grow by building advertising, live events, and video games. The company's stock has lost about a fifth of its value this year as investors question how it will sustain growth. Third-quarter projections "appear to reflect a combination of management caution and a naturally maturing growth profile, rather than any sudden deterioration in the business," said PP Foresight analyst Paolo Pescatore. He added that the guidance 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."

Netflix said it would reduce its twice-yearly release of a viewing-hours report to once a year, starting in January 2027, "to keep the focus on our primary financial metrics - revenue and operating profit." The company had already stopped publishing quarterly subscriber numbers in 2025.

Q2 Results Broadly in Line With Estimates

For the just-ended quarter, Netflix's revenue and EPS were roughly in line with analyst estimates. Earnings per share came in at 80 cents for the three-month period, which featured hits including crime drama "I Will Find You" and animated feature "Swapped." Revenue totaled $12.56 billion. "Our financial performance remains solid and we're on track to meet our objectives for the year," the company said in its quarterly letter to shareholders.

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Advertising and Gaming Push Continues

The company is building an advertising business and offering video games, two initiatives still in the early stages. It repeated an earlier forecast that ad revenue would reach $3 billion by the end of the year, counting on its growing number of live events, including an expanded NFL slate, to draw more advertising dollars. On a post-earnings video, Peters said the company was considering whether to offer a free, ad-supported option in some markets but had no near-term plans to launch one.

Engagement Remains Healthy

Netflix said engagement - the amount of time people spend watching the service-- was "healthy." Viewing hours grew by 2% in the first half of the year, compared with 1.5% a year ago. The company said it aims to stay ahead of the competition partly by using technology to improve all aspects of its business, noting that generative AI use by producers is "scaling quickly" and has been employed in about 300 titles, mostly in post-production.