Netflix shares drop 9% on soft forecast as ad growth lags expectations
Netflix beat second-quarter earnings but a disappointing third-quarter forecast drove its stock down 9 percent, signaling to European investors that the streamer's shift to an advertising model and price hikes may not sustain its historical growth rates.
Netflix reported second-quarter revenue of $12.56 billion, up 13 percent on the year, with earnings of $0.80 per share narrowly beating analyst expectations. However, the streaming giant's stock dropped 9 percent after hours when its third-quarter guidance fell short of Wall Street models. The company forecast revenue of $12.86 billion and earnings of $0.82 a share, missing consensus estimates of $13 billion and $0.84 respectively.
For European investors and advertisers, the disappointment centres on the pace of the company's business model transition. A projected 12 percent growth rate for the current quarter would mark Netflix’s slowest expansion in roughly three years. The era of easy growth through password-sharing crackdowns has ended, and the ad-supported tier meant to replace it is still ramping up.
Netflix expects its advertising business to generate about $3 billion this year, nearly double the 2025 figure. Yet that remains a thin slice of a total revenue base approaching $51 billion. European media buyers will note that despite this doubling, ad revenue is not yet moving the needle enough to satisfy equity markets accustomed to rapid expansion.
With subscriber additions no longer the primary narrative, Netflix is leaning on price increases to drive revenue. That strategy is facing direct pushback on the continent, as demonstrated by Dutch consumers currently suing the company over recent subscription hikes. The litigation highlights the friction inherent in extracting more money from an existing base rather than expanding it.
Underlying profitability remained stable, with an operating margin of 33.4 percent and net income of $3.4 billion. Free cash flow fell to $1.5 billion from $2.3 billion a year earlier as content spending resumed. Engagement held steady at over 97 billion hours viewed in the first half of 2026, though live programming accounted for just 1 percent of those hours despite consuming more than 5 percent of the content budget.
Netflix narrowed its full-year revenue guidance to between $51 billion and $51.4 billion, keeping the midpoint effectively unchanged at $51.2 billion. Simultaneously, the company announced it would reduce transparency by publishing its engagement report annually rather than twice a year, a shift that rarely reads as corporate confidence.
