Netflix Beat Earnings and Widened Its Margin — Then Guided the Next Quarter Down, and the Stock Slid

Netflix did the thing investors keep saying they want on Tuesday afternoon, October 20, 2026: it beat the profit number, widened its margins and kept its members from leaving. Then it told Wall Street what the next quarter looks like, and the stock fell anyway. Netflix reported third-quarter earnings of $0.87 a share, five cents ahead of the $0.82 consensus, on revenue of $12.87 billion that was in line with expectations and up about 12% year over year, according to FXStreet. Shacknews reported the same revenue figure, quoting Netflix’s shareholder letter directly. In the letter, Netflix stated: “Revenue in Q3 grew 12% year over year (+11% on a foreign exchange neutral basis), and was in-line with our forecast.” One note on the tape before we go further: Reuters put third-quarter revenue at $13.44 billion in its report. The shareholder letter, as quoted by Shacknews and FXStreet, supports $12.87 billion — and Reuters’ own preview a day earlier had pegged the LSEG forecast at exactly $12.87 billion — so $12.87 billion is the figure used throughout this story. This report follows our preview of tonight’s doubleheader, Netflix and SpaceX Report Tonight.

The beat was real

Start with what went right, because plenty did. Operating margin came in at 34.6%, up sharply from 28.2% in the third quarter of 2025 and ahead of forecast, with management attributing the jump primarily to the timing of expenses, according to FXStreet. In the shareholder letter quoted by FXStreet, the company said revenue growth “was driven primarily by subscription revenue, reflecting increases in memberships and pricing, growth in advertising revenue and a favorable impact from F/X rates.” Just as important for a company whose story now runs on retention, the letter said membership growth “benefited from continued, healthy retention in every region,” and that churn, both globally and in the US, improved year over year and came in better than forecast. In plain English: people are paying more, sticking around longer, and the ad tier is starting to matter. That is the quarter Netflix wanted to print.

The market’s verdict on the quarter itself was visible before the report even landed. Netflix shares closed the regular session at $68.69, down 1.66% on the day, and then slid roughly 5% in after-hours trading toward the $65 range, according to FXStreet. Reuters, checking the tape a little later, had the decline at nearly 7%, to $63.99. After-hours prices move around by the minute, so read that as a slide of roughly 5–7% rather than a single settled number — but the direction was never in doubt, and it was not the third quarter that caused it.

Guidance did the damage

The problem is the fourth quarter. Reuters reported that Netflix forecast fourth-quarter net income of $2.79 billion and earnings of $0.67 a share, against average analyst expectations of $3.07 billion and $0.73 — a clean miss on the number investors actually trade on. FXStreet reported the revenue side of the same guide: Netflix expects fourth-quarter revenue of $13.4 billion, up 12% year over year, but sees its operating margin sliding more than eight points, to about 26%, because of costs tied to its recent layoffs of close to 1,000 employees. Reuters put the same restructuring in starker terms: the company laid off about 6% of its workforce just days before the report and replaced two of its top programming executives. A margin story that runs 34.6% one quarter and guides to roughly 26% the next is a story about a company spending money to change itself, and Wall Street tends to charge for the changing part up front.

The advertising reset did not help the mood. Reuters reported that Netflix cut its advertising revenue forecast for 2026 to roughly $2.7 billion, down from about $3 billion, with executives telling shareholders that some ad product capabilities rolled out slightly slower than expected. Advertising is supposed to be the second engine — the business that keeps growing even when membership growth cools — so a trimmed forecast lands harder than the dollar amount alone suggests. Reuters also framed the strategic backdrop bluntly: the company that upended Hollywood now competes for viewing time with a surge on YouTube and TikTok, has pushed into video games, podcasts and live events to hold attention, and is facing pointed analyst questions about how it kick-starts growth from here. Netflix’s answer is more licensed third-party content alongside originals built, in the words of the shareholder letter as reported by Reuters, to “spark conversation, bring in more members and make us a ‘must-have’ service.” We have covered the gaming side of that push before, including the uncomfortable internal numbers in our report on Netflix’s gaming memo.

What was on the screen

The third-quarter slate itself was built to spark exactly that conversation. Reuters listed the quarter’s headline programming: “Monster: The Lizzie Borden Story,” the second season of “The Gentlemen,” the final installment of “Outer Banks” and a reboot of “Little House on the Prairie.” It is a very Netflix mix — a true-crime franchise entry, a returning crime drama with a built-in audience, a long-running young-adult favorite getting its send-off, and a piece of American comfort television dusted off for a new generation. Whether that slate, plus the licensed catalog the company says it will expand, can re-accelerate viewing hours is the genuine open question. The shareholder letter acknowledged investor concern about a drop in viewership hours, which Shacknews noted the company links to this year’s price increase, and said the strategy remains originals plus strategic partnerships.

So the afternoon leaves Netflix in a familiar, slightly unfair position — one it shares with GM, which beat earnings this morning and watched its stock fall more than 5% anyway. The reported quarter was good: a five-cent earnings beat, an in-line $12.87 billion in revenue, a 34.6% operating margin and churn moving the right direction. The traded quarter is the next one: $13.4 billion of guided revenue at a margin near 26%, net income guided below consensus, an ad forecast trimmed to about $2.7 billion, and a restructuring whose costs arrive before its benefits do. Investors are not doubting that Netflix can run a profitable streamer; this print says it plainly can. They are asking what the growth engine is after the price increases wash through — and on Tuesday afternoon, Netflix’s answer was not enough to keep the stock green.