Revenue exactly in line with plan, earnings above expectations—and the stock still fell ~5% after earnings in after-hours trading.
I went through the shareholder letter, financial statements, and the entire call with management. Here’s what stood out to me most 👇
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📊 KEY FIGURES
Q3 2026, released 20. 10. 2026
✅ Revenue: 12,87 bn USD (+11,8 % y/y), in line with estimates
✅ EPS: 0,87 USD vs. estimate of 0,82 USD (+49 % y/y)
✅ Operating margin: 34,6 % (28,2 % a year ago)
✅ Free cash flow: 2,88 bn USD (2,66 bn a year ago)
❌ Q4 revenue outlook: 13,44 bn USD vs. estimate of 13,51 bn
❌ 2026 advertising: ~2,7 bn USD instead of the planned 3 bn
❌ Full-year FCF cut from 12,5 to 12,0 bn USD
Revenue growth has slowed for four consecutive quarters:
17,6 % → 16,2 % → 13,4 % → 11,8 % → outlook 11,5 %
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🔍 WHAT THE AVERAGE INVESTOR DOESN’T SEE
1️⃣ Margin growth is partly an illusion
Last year’s results were burdened by a tax dispute in Brazil (operating income was lower by ~400 mn USD). So the comparison base is low.
Management itself admits the margin beat the plan mainly because of a shift in costs. Those costs will move into Q4, where the company expects a margin of just 26 %.
2️⃣ They bought back shares at ~75 USD
In Q3, they repurchased 63,9 mn shares for 4,8 bn USD—the largest quarterly buyback in history.
Average price ~75 USD. The stock is around 68,7 USD today → management bought at a higher price than you can.
3️⃣ They’re spending more on buybacks than they earn
• Buybacks over 9 months: 10,8 bn USD
• FCF over 9 months: 9,5 bn USD
• Cash: down from 9,0 to 8,2 bn USD
• New 1 bn USD bond in Q3; short-term debt rose from 1,0 to 2,5 bn
Net debt of 7,1 bn USD doesn’t worry me. But the pace of buybacks is high, and 22,3 bn USD still remains in the program.
4️⃣ EPS is growing faster than earnings
Net income +44 %, EPS +49 %. The difference = buybacks (share count −3,3 % y/y) and a lower tax rate (15,1 % vs. 18,1 %).
5️⃣ Full-year cash flow is weaker than it looks
The 12 bn USD estimate includes a one-time 2,8 bn USD payment—compensation from Warner Bros. Discovery for the canceled merger (Q1).
The estimate was first raised from 11 to 12,5 bn, and has now been cut to 12 bn, mainly due to a property purchase in Q4.
Netflix hasn’t specified which one. The most likely candidate is Radford Studio Center in LA (unconfirmed)—Bloomberg reports a price of ~400 mn USD; the previous owner bought it for 1,85 bn in 2021.
👉 Without the payment from WBD, FCF would be below the original plan.
6️⃣ Content is cheaper in the accounts than in cash terms
• Content amortization +5,8 %, revenue +11,8 % → the main source of margin growth
• Cash spending on content +10,9 %
• Cash/amortization ratio: Q3 1,22×, 9 months 1,17×, full-year target ~1,1×
So in Q4, spending will either slow significantly or the target will change. I think this is where the difference between earnings and cash flow lies.
7️⃣ Where the money is going
• Technology and development: +21 %
• Stock-based compensation: +65 % (134 vs. 81 mn USD)
• Capital expenditures: +69 %
• Marketing: +6 %, administration: +2 %
So cutting ~1 000 jobs (6 %) isn’t broad-based cost cutting—the money is being shifted into technology.
8️⃣ The slowdown is accelerating overseas
Revenue growth excluding currency effects, Q3 2025 → Q3 2026:
🌍 EMEA: 15 % → 9 % (despite the partnership with TF1)
🌎 Latin America: 20 % → 12 %
🌏 Asia Pacific: 20 % → 15 %
🇺🇸 US and Canada: 17 % → 11 % (vs. Q2 10 %—a slight acceleration)
Management praised international markets and saw the problem in the US. The data suggests the opposite—we’ll have to watch.
9️⃣ Advertising is growing quickly, but it’s still small
+80 % annually, but at 2,7 bn USD it’s ~5 % of revenue. A 300 mn shortfall is small for the results, but big for market sentiment.
The ad-supported plan still generates less per member than the ad-free plan, but the gap is narrowing.
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🎙️ FROM THE MANAGEMENT CALL
✅ Sarandos: The US is growing, but more slowly than they’d like. Quality titles, yes; global hits, no. That’s why Peter Rice (ex-Disney, Fox) is joining as the new head of content.
✅ Peters: The layoffs mean reviewing areas where the company grew and invested too quickly. The CFO declined to quantify savings for 2027.
✅ 2027 targets unchanged: double-digit revenue growth, higher margins, FCF growth. Specific outlook in January.
✅ In the US, subscribers pay the least per hour of viewing among all streaming services—some competitors charge more than 2× as much. Room to raise prices.
✅ Year-over-year churn fell globally and in the US, even after the price increase.
✅ India: viewership +24 %, revenue ~+18 % excluding currency effects, record number of new paying members.
✅ Theaters: revenue disclosed for the first time. La Bola Negra—over 69 000 USD per theater in the US, the 2nd-best foreign-language film after Parasite.
✅ Licensing: Disney (all 5 Ice Age films in the top 10) and the biggest deal with Globo in its history.
✅ A hint: add-on subscriptions directly within Netflix. Nothing official yet.
✅ Short-form videos and user-generated content are just experiments; ~95 % of spending goes to the core business.
✅ Ad-supported plan coming to 15 new countries in 2027, with the first wave in March.
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💰 VALUATION
• Since the start of 2026: −26 % (before earnings)
• From 2025 highs: nearly −50 %
• Price: 68,69 USD
• P/E 21,0 vs. 5-year average of 41,1 and industry median of 23,5
• Fair value according to the Bulios model: 89,93 USD
Fair value is no guarantee. The market won’t be focused on earnings now, but on whether Netflix can accelerate growth again.
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📌 MY TAKE
It wasn’t a bad quarter, just a lackluster one. The company is earning more, margins are growing, and fewer customers are leaving.
There’s one problem: revenue growth is slowing, and management hasn’t yet shown what will reverse it. The new head of content, layoffs, and massive buybacks show that it recognizes the issue.
Q4 (Cliff Booth from Fincher, NFL, Fury vs. Joshua) and the January 2027 outlook will be decisive:
→ Double-digit growth + higher margins = a P/E around 21 will look cheap
→ Otherwise, the market will keep valuing it as a mature company with slower growth
This is not investment advice. I’m sharing how I read the results.
