Netflix trims its 2026 ad forecast as third-quarter margin widens

What happened

Netflix reported on Tuesday 20 October that third-quarter revenue was $12.9 billion, 12 percent more than a year earlier, and lowered its 2026 advertising forecast. ^{[1, 2]}

Operating margin, the share of revenue left after running costs, was 34.6 percent, against 28.2 percent a year earlier. Net income was $3.66 billion, up from $2.55 billion. The company said the margin came in ahead of its own forecast mainly because of the timing of expenses. ^[1]

Why it matters

Netflix now expects about $2.7 billion of advertising revenue in 2026, against about $3 billion in July, and blamed a 'slightly slower than expected rollout of some ad product capabilities.' The full-year revenue forecast is $51.1 billion, which the letter says is 0.2 percent below the middle of July's $51.0 billion to $51.4 billion range, with subscriptions ahead of plan. The 2026 operating margin forecast stays at 31.5 percent, the figure given in July. ^{[1, 3]}

Cash, buybacks and debt

Free cash flow, the cash from operations less spending on property and equipment, was $2.9 billion in the quarter, against $2.7 billion a year earlier. The company now expects about $12.0 billion for the year, down from $12.5 billion in July. It said the change is mainly a real estate transaction it expects to close in the fourth quarter. ^{[1, 3]}

Netflix bought back 63.9 million shares for $4.8 billion, which it called its largest quarter of repurchases, and has $22.3 billion of authorization left. It ended September with gross debt of $15.3 billion and cash of $8.2 billion, after a $1 billion bond sale to repay $1 billion falling due in the fourth quarter. ^[1]

The job cuts and the slate

The fourth-quarter margin forecast of 26.0 percent includes about 120 basis points, hundredths of a percentage point, of cost from the job cuts. The co-chief executives announced them in a memo on Wednesday 14 October. The AP reported nearly 1,000 positions, about 6 percent of staff; Variety and Deadline reported about 1,000. ^{[1, 4, 5, 7]}

The letter addressed 'some investor concern about our view hours growth', saying members' response to the 2026 price increases matched past changes. It lists the company's biggest quarterly live slate: an NFL game on Thanksgiving Eve, two on Christmas Day and the Tyson Fury against Anthony Joshua fight. ^[1]

What settles it next

The fourth-quarter results will show the outcome against Netflix's forecast of $13.4 billion in revenue and a 26.0 percent margin. The ad-supported plan reaches nine countries in Europe, plus Colombia, Peru and New Zealand, in March 2027, the first of 15 new countries that year, the company said. ^{[1, 4, 6]}

Who it reaches

Netflix (NFLX) is direct: the results, forecasts and buybacks are its own. Walt Disney (DIS) is adjacent: the letter names a new licensing deal bringing Disney series and films, all five Ice Age films among them, to Netflix. ^[1]

MercadoLibre (MELI) is adjacent: the letter names it as a new advertising partner in Latin America. ^[1]