Netflix's third-quarter profits exceeded market expectations, but revenue growth continued to slow down, and the advertising business fell short of expectations. The fourth-quarter performance forecast is also lower than what analysts predicted. As the attractiveness of its content and user engagement are being questioned, Netflix is seeking new sources of growth through management adjustments and by expanding into live streaming and gaming businesses.

On Tuesday, Netflix announced its financial results for the third quarter of 2026, with revenue increasing by 11.8% year-on-year to $12.874 billion, in line with the company's previous expectations; net profit increased by about 43.8% year-on-year to $3.664 billion, and earnings per share after dilution were $0.87, higher than the analysts' average forecast of $0.82.

However, the company expects its revenue in the fourth quarter to reach $13.4 billion, with the year-over-year growth rate further declining to 11.5%, marking the fourth consecutive quarter of slowdown. The net profit for the fourth quarter is expected to be $2.787 billion, resulting in an earnings per share of $0.67 after dilution, both of which are lower than the analysts' average forecasts of $3.07 billion and $0.73 per share, respectively.

The company also lowered its advertising revenue forecast for 2026 from approximately $3 billion to $2.7 billion, reflecting that the rollout of certain advertising product features has been slower than expected, which has further exacerbated market concerns.

The company expects a operating profit margin of 26% in the fourth quarter, and the costs associated with layoffs will also affect the profit margin for that period.

Netflix's stock price fell by 7% during trading after the release of its financial report. Since the beginning of this year, Netflix's stock price has dropped by about 25%, and it has fallen by more than 40% compared to a year ago. After failing to successfully acquire Warner Bros. Discovery's streaming and production business, the company has been facing questions from investors regarding its independent growth strategy.

Co-CEOs Ted Sarandos and Greg Peters are adjusting the company's management structure in response to concerns regarding the quality of its content. Netflix recently announced the reduction of about 1,000 employees, followed by adjustments to the management team in charge of its content business.

Faced with weak growth in user viewing time, continuous competition from other platforms for attention, and the failure to realize its plans to acquire Warner Bros.' related streaming and production businesses, Netflix needs to prove to investors that its existing business still has the capacity for sustained growth.

Content management adjustments: Netflix attempts to solve the issue of program attractiveness

As revenue growth slows down, Netflix is making adjustments to its content business.

Netflix recently laid off about 6% of its employees, affecting around 1,000 people. Subsequently, there were significant changes in the company's content business management team, with Chief Content Officer Bela Bajaria and the person in charge of the film business, Dan Lin, stepping down. The company's co-CEOs, Ted Sarandos and Greg Peters, brought in a senior executive from the film and television industry, Peter Rice, to replace Bajaria.

This series of adjustments reflects the management's emphasis on content quality. Netflix has not been able to release films or television series with widespread cultural impact for several months, and its new shows as well as continuations of classic series are facing challenges in attracting viewers. The number of Emmy Awards the company won in 2026 dropped to a ten-year low, further intensifying external discussions about the quality of its content.

In a letter to shareholders, Netflix stated that in an environment characterized by fierce competition and a growing abundance of content vying for consumers' attention, a clear strategic direction and excellent execution are of paramount importance. The company also acknowledges that there is room for further improvement in the process of implementing its established priorities.

Netflix's content strategy has also undergone changes. In its early days, the company built its brand with highly acclaimed series such as "House of Cards" and "The Crown," and later expanded to become a platform covering movies, reality shows, sports, and other forms of entertainment. During Bajaria's tenure, the company launched popular works like "Squid Game" and "Wednesday," and promoted the development of live streaming programs and unscripted content. However, recent content performance has not been able to consistently meet market expectations, putting pressure on management to readjust resource allocation and creative direction.

For investors, the change in management does not necessarily mean that the quality of content will improve immediately. Netflix needs to prove over the coming quarters that organizational adjustments can lead to a more stable supply of popular content and once again increase user viewing time.

engagement growth is weak, YouTube continues to compete for viewing time

In addition to content quality, user engagement is also an important challenge that Netflix faces.

According to data cited by Bloomberg from Nielsen, Netflix accounts for 7.8% of total television viewing time in the United States, which is lower than YouTube's share of about 14%. The total viewing time of Netflix users for programs in the first half of this year only increased by 2% year-on-year.

These data indicate that although Netflix remains a leading global streaming platform, its advantage in the user attention market is not without pressure. Platforms such as YouTube offer a more diverse range of content formats, with short videos and user-generated content competing with traditional films and television shows for viewership time.

Netflix's Co-CEO Ted Sarandos stated in an interview with Bloomberg last month that the company's current growth rate did not meet his expectations, and he is working hard to accelerate growth.

Netflix has over 325 million subscribed users. The company states that, according to its estimates, the number of viewers corresponding to these subscribers is close to 1 billion, and the platform's viewing scale is still higher than that of other Hollywood streaming services. However, this large user base has not automatically translated into a faster growth in viewing hours. How to increase the engagement of existing users has become a question that management must answer.

engagement is not only related to the subscription business but also affects the commercial potential of the advertising business. If there is limited increase in viewing duration, ad inventory, ad reach, and monetization opportunities may also be constrained. Netflix needs to maintain the attractiveness of its subscription business while increasing the frequency and duration of content consumption on the platform.

Expand live streaming, podcasts, and gaming to find new sources of growth.

Faced with growth pressures, Netflix is expanding the types of content it offers and increasing the supply of third-party programs in order to increase users' time spent on the platform.

The company plans to continue expanding its business in areas such as live sports events, podcasts, and video games, while also introducing third-party film and television content. For example, Netflix is integrating movies and television programs from partners such as TF1 in France to enrich the platform's content offerings.

These measures reflect Netflix's transition from a streaming service centered on original films and television to a platform that covers a wider range of entertainment formats. Through live broadcasts, games, and third-party content, the company hopes to attract more users to its services and increase the viewing time of existing users.

However, business expansion also requires facing challenges at the execution level. Netflix not only needs to expand the variety of content but also ensure that the new content can effectively attract viewers and translate into sustained user engagement and revenue growth. The downward adjustment of advertising business targets indicates that the commercialization progress of new businesses may not always meet previous expectations.

In addition, after the plan to acquire the related business of Warner Bros. Discovery failed, Netflix still needs to prove to the market that it can maintain growth without relying on major acquisitions. Investors had previously raised doubts about the company's growth strategy, and future performance and content outcomes will become an important basis for evaluating whether its strategy will be effective.

Layoff costs drag down short-term profit margins, and management still needs to rebuild confidence in growth.

Netflix expects a operating margin of 26% in the fourth quarter, and the costs associated with layoffs will affect the margin for that period. This means that while the company is adjusting its organizational structure and seeking to improve operational efficiency, it also needs to bear certain short-term costs.

The task faced by Co-CEOs Ted Sarandos and Greg Peters is to convince investors that Netflix still has a clear long-term growth path, while acknowledging that there is room for improvement in the business. The company currently maintains a large global user base, but the slowdown in revenue growth, limited increase in viewing hours, and advertising revenue falling short of expectations all indicate that its growth model is facing new challenges.

Analyst David Joyce stated before the financial report release that investors need to see signs that are sufficient to boost confidence as soon as possible, in order to believe that Netflix, a global platform, can achieve its desired growth trajectory.

For Netflix, the key ahead lies in whether it can enable the content management team to adjust and transform into a more stable supply of popular works, thereby driving an increase in user viewing time and improving the commercialization progress of its advertising business.

Third-quarter profits exceeding expectations prove that the company still has strong profitability. However, to regain market confidence, Netflix needs to demonstrate that its revenue growth can stabilize, rather than relying solely on cost control to maintain its profit performance.