Netflix Q2 earnings in line but soft Q3 outlook sinks shares 9% as growth fears deepen

Second-quarter results meet, not exceed

Netflix reported April-to-June revenue of $12.56 billion, a 13% rise from $11.08 billion a year earlier, just shy of the $12.58 billion FactSet consensus. Earnings per share reached 80 cents, a penny above the 79-cent forecast, while the operating margin held steady. Hits during the period included the crime drama “I Will Find You,” an adaptation of a Harlan Coben novel, and the animated feature “Swapped.”

Our financial performance remains solid and we’re on track to meet our objectives for the year.

The company ended the quarter with more than 325 million paying members. Engagement, measured by viewing hours, grew 2% in the first half of 2026, compared with 1.5% in the same period last year, with members watching over 97 billion hours of content.

Third-quarter guidance underwhelms

For the July-to-September period, Netflix forecast revenue of $12.86 billion and diluted earnings per share of 82 cents. Analysts surveyed by LSEG had modelled $13 billion in revenue and 84 cents per share, and the 12% year-on-year revenue growth would be the slowest quarterly pace in roughly three years. The company also confirmed it would cut its twice-yearly viewing-hours report to once a year starting January 2027, after having stopped quarterly subscriber disclosures in 2025, a move intended to focus investors on revenue and operating profit.

Advertising remains the designated growth engine. Netflix repeated its forecast that ad revenue would reach $3 billion by year-end, nearly double the 2025 figure, although that sum is still a small slice of a business heading toward $51 billion in total revenue. Live programming, including an expanded NFL slate, is expected to draw more ad dollars but accounts for just over 5% of content spend.

Market reaction and analyst voices

Netflix shares fell roughly 7-9% in after-hours trading on Thursday, erasing calm that had followed a record buyback authorisation in April. By premarket Friday the decline deepened to 9.2%, pushing the stock toward a level more than 44% below its June 2025 all-time high. At least 11 analysts cut their price targets following the release.

The story lacks excitement.

Wlodarczak, an analyst at Pivotal Research Group, said younger audiences are gravitating to free social media platforms, which could slow subscriber additions and force more aggressive price increases. PP Foresight analyst Paolo Pescatore argued the outlook 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.”

They will 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.

Broader market pressure added to the selloff. U.S. stock futures slid on Friday as a chip-stock rout extended, and geopolitical concerns flared after Iran launched fresh attacks on U.S. facilities in the Gulf.

Strategic pivots and the road ahead

Chief financial officer Spencer Neumann told analysts that Netflix has only reached about 45% of its addressable market and accounts for just 5% of global TV viewing, adding $6 billion in sales this year. “We don’t manage the business on a quarter-to-quarter basis,” he said. Content spending will grow about 10% in 2026, slightly above the recent average, and the company has used generative AI on some 300 shows.

We don’t manage the business on a quarter-to-quarter basis.

The second-half content slate is seen as weaker than a year ago, according to Jefferies analysts, while new deals with YouTube personalities Alan Chikin Chow and Nick DiGiovanni and a partnership with French broadcaster TF1 aim to refresh the offering. The stock’s forward price-to-earnings multiple stood at 19.92 times, above Walt Disney’s 13.54 and Comcast’s 6.57.