Netflix reports third-quarter results after the market closes on Tuesday, Oct. 20, and the numbers are likely to be the easy part. The harder questions start after them.
Disciplined about where we prioritize
The memo offered no operational detail beyond a rationale. "Our mission — to entertain the world — is ambitious, and delivering on it requires us to be disciplined about where we prioritize our people and resources," the co-CEOs wrote. Netflix has not disclosed a severance charge, a savings target or the earnings impact. A month earlier, Sarandos told Bloomberg's Screentime event that "we're not growing as fast as I want us to," then added: "The business is great and growing fine."
Bajaria out, Rice in
Engagement is the real problem
Advertising: $3 billion, still 6% of sales
Advertising is the most credible second engine. Netflix expects ad revenue to roughly double to about $3 billion in 2026, with more than 4,000 advertisers, up 70%, and 250 million monthly active viewers on its ad tier as of May. Even so, $3 billion is only about 6% of annual revenue. Jefferies sees ad revenue reaching $7.5 billion by 2029; Wedbush warns the ramp may take longer than expected.
A stock down 22% and a divided Street
Netflix closed at $72.61 on Oct. 15 and opened at $69.87 the next morning, last trading around $71. The stock is down 22.56% year to date, against a 13.18% gain for the S&P 500, and 39.66% over twelve months; its 52-week range runs from $65.08 to $124.86. Jefferies issued a Buy rating and an $85 target on Oct. 15. Wedbush kept Outperform but cut its target to $90 from $105; BMO went to $125 from $135; Rosenblatt stayed neutral at $75; Huber Research double-downgraded to Underweight with a $70 target. The average Street target is about $92, roughly 27% above the current price and a measure of how little agreement there is.
Tuesday's numbers matter less than guidance
Guidance calls for $12.86 billion in revenue, up 11.7%, a 33.2% operating margin and $0.82 in earnings per share. The consensus of 35 analysts is $12.88 billion and $0.82, with pre-tax profit of $4.13 billion, up 33%, according to LSEG data cited by IG. Full-year revenue is guided to $51.0 billion to $51.4 billion at a 31.5% operating margin, with about $12.5 billion of free cash flow. The implied fourth quarter is $13.3 billion to $13.7 billion, or 11% to 14% growth. Investors will also want the 2027 slate, which Oppenheimer counts at 36 sequels and 55 non-sequel titles, and any sign that price increases can lift revenue without accelerating churn.
What the cuts actually change
A thousand departures mean the same product, legal and content work with fewer people. For creators, a change at the top may mean fewer, bigger bets. For advertisers, the question is whether the ad build-out keeps pace. Netflix also shut Night School Studio in August and plans to close Moonloot in Helsinki, and it walked away from Warner Bros. Discovery, collecting a $2.8 billion breakup fee after Paramount closed its $110 billion takeover on Oct. 6, a payment that briefly sent Netflix shares up 14%. The cash is real. The growth story is the part still waiting for a script.
