Netflix revenue misses as Q3 outlook disappoints, stock falls 11%

Netflix reported second-quarter revenue of $12.56 billion, slightly missing estimates, and issued a third-quarter outlook that fell short of Wall Street expectations.

"All around, there's really nothing here to get excited about," Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, said.

Revenue grew 13.4% from a year earlier, decelerating from 16.2% growth in the first quarter and coming in below the $12.58 billion Bloomberg consensus. Earnings per share of $0.80 edged past the $0.79 estimate and rose from $0.73 a year ago. Net income climbed to $3.4 billion from $3.3 billion.

The results sent Netflix shares down 11% in premarket trading, extending a 40% decline over the past 12 months. The miss raises questions about the company's ability to sustain growth as competition from traditional media and rival streaming platforms intensifies.

Metric	Actual	Consensus	Beat/Miss
Revenue	$12.56B	$12.58B	-0.2%
EPS	$0.80	$0.79	+$0.01
Q3 Rev Guidance	$12.86B	$13.00B	-1.1%

Netflix guided third-quarter revenue at $12.86 billion, below the $13 billion analysts expected, and sees earnings per share of $0.82 versus the $0.84 consensus. For the full year, the company forecast revenue of $51 billion to $51.4 billion, narrowing from its prior range of $50.7 billion to $51.7 billion.

Regionally, the US and Canada segment, Netflix's largest by revenue, grew 10% year over year, underperforming its growth rate over the prior four quarters. Only Latin America posted accelerating growth from the first quarter.

Engagement, a closely watched metric, showed mixed signals. Total viewing hours reached 97 billion in the first half of 2026, a record for the company and up 2% from a year earlier despite competition from the Winter Olympics and the World Cup. But average daily viewing time among subscribers fell 7% to 1 hour and 33 minutes in 2025, according to measurement firm Digital i, signaling potential softening in user engagement.

Co-CEO Greg Peters pushed back on the focus on raw viewing hours, saying "not all hours are created equal." Live events, which account for 5% of Netflix's 2026 content budget and 1% of view hours, drive subscriber acquisition and revenue but yield fewer total hours, he said. The company plans to publish its "What We Watch" engagement report annually starting in 2027, shifting from its current semiannual cadence, a move media analyst Brian Wieser of Madison and Wall said may be intended "to reduce attention paid to time spent on the platform."

Netflix's advertising business remains a bright spot. The company is on track to deliver $3 billion in global ad revenue for 2026, up from $1.5 billion in 2025. US advertising revenue reached $388 million in the second quarter, an 85% increase from a year earlier, according to Madison and Wall estimates. Advertising now represents about 7% of Netflix's total US revenue. The company is expanding programmatic availability for pause ads and live event inventory this summer.

On the content front, Netflix will launch short-form content from publishers including BuzzFeed Studios, Condé Nast, Hearst, and Penske Media on Aug. 3, adopting a strategy used by major social media platforms to boost engagement. The company has also deployed generative AI tools across roughly 300 titles so far in 2026, primarily in postproduction work for crowd scenes, battle sequences, and establishing shots.

Free cash flow declined to $1.5 billion from $2.3 billion a year earlier, partly due to higher cash tax payments related to the $2.8 billion breakup fee Paramount Skydance paid Netflix after winning the bid for Warner Bros. Discovery.

The guidance miss and engagement concerns suggest Netflix faces headwinds in convincing investors of a growth reacceleration. The company's next catalyst will be the short-form content launch on Aug. 3 and the Q3 earnings report, where investors will look for signs that ad revenue and subscriber trends are gaining momentum.

This article is for informational purposes only and does not constitute investment advice.