Netflix cuts 2026 ad forecast to about $2.7 billion as Q3 operating income rises 37%

Netflix (Nasdaq: NFLX) reported third-quarter operating income of $4.46 billion, up 37% from a year earlier, and lowered its 2026 advertising forecast, according to its shareholder letter filed with the Securities and Exchange Commission on Tuesday.

What happened

Revenue was $12.874 billion, up 11.8% from $11.510 billion, or 11% excluding currency effects. Netflix attributed the growth mainly to subscription revenue, from more members and higher prices, with advertising revenue also growing. Operating margin was 34.6%, up from 28.2%. Netflix said the margin was ahead of its own forecast "primarily due to the timing of expenses." Diluted earnings per share were $0.87, up from $0.59, and free cash flow was $2.884 billion.

The advertising forecast

Netflix said it now expects advertising revenue of about $2.7 billion in 2026, compared with about $3 billion previously. It attributed the change to a "slightly slower than expected rollout of some ad product capabilities." It said subscription revenue growth had outperformed its expectations. Netflix still expects full-year revenue of $51.1 billion, up 13%, which it said is 0.2% below the midpoint of its earlier range.

The fourth quarter

Netflix forecast fourth-quarter revenue of $13.442 billion, up 11.5%, and an operating margin of 26.0%, compared with 34.6% in the third quarter. The company said the margin includes a negative impact of about 120 basis points from "recently announced headcount reductions." It expects a full-year 2026 operating margin of 31.5%, compared with 29.5% in 2025.

Netflix also said member response to its 2026 price changes was "consistent with prior adjustments and our expectations," and that churn improved year over year globally and in the United States.

What to watch

Netflix said its guidance is its "actual internal forecast at the time we report." Its fourth-quarter results will show whether advertising revenue and the cost of the headcount reductions come in as described.