Netflix beats earnings estimates, so why are shares falling?
What's the story
Netflix has reported its third-quarter earnings, which have beaten analyst estimates. The company's revenue for the period ending September 30 was in line with expectations, according to data from LSEG. The streaming giant posted a net income of $3.66 billion or $0.87 per share, compared to last year's $2.55 billion or $0.59 per share during the same period.
Financial performance
Revenue growth driven by membership increase and subscription price hike
Netflix's revenue for the third quarter was $12.87 billion, matching analyst expectations.
This marks a nearly 12% year-over-year increase, driven by membership growth and a subscription price hike implemented in March.
The company said that the response to these price changes has been consistent with previous adjustments and its expectations.
Future outlook
Company anticipates Q4 revenue increase
Netflix anticipates a more than 11% increase in fourth-quarter revenue to $13.44 billion, driven by membership growth, pricing, and ad revenue.
The company has also revised its full-year forecast for 2026, now expecting revenue of $51.1 billion, up 13% from last year.
This is at the lower end of its previous guidance range of $51 billion-$51.4 billion and below Wall Street's estimate of $51.2 billion for the year, according to LSEG data.
Market reaction
Shares drop despite positive earnings report
Despite the positive earnings report, Netflix's shares fell by about 6% in extended trading on Tuesday.
The market and investors are keen to hear more about the company's strategy after recent organizational changes and challenges such as stagnant viewership and increased competition from platforms like YouTube.
In a shareholder letter, Netflix acknowledged these concerns but emphasized that engagement remains healthy and continues to deliver strong value to members.
Ad strategy
Netflix lowers full-year revenue guidance for ad business
Netflix has lowered its full-year revenue guidance for its ad business to around $2.7 billion, down from the previous estimate of about $3 billion.
The revision is due to a slower-than-expected rollout of certain ad product capabilities.