Shares in Netflix Inc. (Nasdaq: NFLX) have fallen to a more than a two-year low after the streaming giant posted its Q3 2026 results yesterday.
Despite hitting Wall Street’s projected revenue target of nearly $12.9 billion for the quarter, an update on the company’s increasingly critical ad business dampened investor optimism, sinking the stock with it. Here’s what you need to know.
What’s happened?
Yesterday, Netflix announced its results for its third quarter of fiscal 2026. Unfortunately for the company, those results—and Netflix’s guidance—were somewhat of a mixed bag.
There was good news: Revenue for the quarter totaled $12.87 billion, representing 11.8% year-over-year growth.
The company’s diluted earnings per share also reached 87 cents. As noted by CNBC, this means Netflix hit the revenue target investors were expecting and exceeded EPS expectations by five cents per share.
However, there was also plenty of news that gave investors pause—and that has caused the stock to drop significantly in premarket trading today.
What did Netflix project?
For the fourth quarter, Netflix said it expects revenue to grow by about 11.5% to $13.44 billion. Double-digit growth is nothing to sneeze at, but unfortunately for Netflix, that revenue forecast comes in under the $13.51 billion that Wall Street was expecting, notes TipRanks.
When it comes to its full fiscal 2026 guidance, Netflix says it now expects revenue of $51.1 billion. As with its Q4 forecast, that is a double-digit increase (about 13% year over year), but it is also on the lower end of the $15.0 to $15.4 billion range Netflix previously forecast for fiscal 2026.
But perhaps what spooked investors most of all was the updated guidance for Netflix’s ad business. The company said it now expects full-year 2026 ad revenue to be around $2.7 billion. That’s $300 million, or 10% less, than the $3 billion in ad revenue Netflix had previously forecast.
What’s weighing on Netflix’s ad business?
As most Netflix subscribers will have noticed, the company has been raising prices on its ad-free subscriptions for years. But Netflix isn’t stupid. It knows that price rises mean consumers’ pocketbooks will be hit harder.
However, Netflix also believes that by jacking up ad-free subscription costs, it will cause many cost-conscious consumers not to cancel their subscriptions, but instead to opt for lower-cost, ad-supported tiers.
While these lower-priced subscriptions mean Netflix will extract less up-front revenue from subscribers, over the long run, Netflix should make more money from each subscriber by serving them ads.
Netflix isn’t alone in this. Nearly every major streaming service has introduced ad-supported tiers in recent years in hopes of transitioning more users to them in order to boost their bottom lines.
In the industry, ad-supported subscriptions are seen as a way for streamers to boost revenue. Investors, too, have put significant hopes for revenue growth into ad-supported tiers.
That’s why investors were so disheartened to hear Netflix announce that its total full-year 2026 ad revenue is expected to come in 10% lower than previously forecast.
As for one of the primary causes of the ad forecast reduction, Netflix co-CEO Greg Peters said it was due to a slower launch of some ad products than originally expected.
“[S]pecifically in this case, we’ve seen some delays in the rollout and partner integrations for some of those new ads products,” Peters said on the company’s financial call, according to a PitchBook transcript. “So getting to the integration model that we want sometimes takes a bit more work with our partners, but we strongly believe that a modest short-term hit for a better long-term strategic position is a good ultimate tradeoff.”
Peters added that the slower rollout shouldn’t impact long-term gains, but investors tend to think in quarters, not the long term. And the lower ad forecast helped drive Netflix stock lower as well.
How have NFLX shares reacted?
As of the time of this writing, NFLX shares are down more than 6.4% to $64.23 in premarket trading. That’s after the company’s shares closed down 1.66% yesterday to $68.69.
Netflix’s current premarket price of around $64 per share is an ignominious milestone for the company. Its share price has not been that low since August 2024—more than two years ago.
Even before today’s 6.4% drop, Netflix’s stock price was trading down more than 26% for the year.
Over the past year, the stock’s price has declined a staggering 44.5% as of yesterday’s close, according to data from Yahoo Finance.
Where the stock goes next is anyone’s guess, but investors will clearly be keeping an eye on the company’s ad efforts in the quarters ahead—efforts Peters seems to have faith in.
“[U]ltimately, advertisers want our new products and features, and that’s a big mechanism of growth for us,” he told analysts on yesterday’s call. “So we are very focused on getting those out to them as quickly as we possibly can.”