Netflix’s ad forecast slips as shares hit a two-year low

By Grace Kim

Netflix shares fell 7% in premarket trading Wednesday to below $64, after its third-quarter 2026 results showed slower revenue growth and a miss on full-year advertising revenue. The decline left the stock nearly 30% lower year to date and at its lowest level since August 2024.

Netflix also issued fourth-quarter revenue guidance slightly below Wall Street expectations. It now expects 2026 ad sales of $2.7 billion, $300 million below its previous forecast, because the rollout of some ad product capabilities has run slower than planned.

What has to change for Netflix?

After viewing dropped, particularly in the United States, Netflix needs to restore engagement and keep revenue rising. Co-CEO Ted Sarandos points first to better execution of the company’s established hit-driven model: a steady supply of buzzy, must-watch television shows and movies.

Last week, Sarandos dismissed content chief Bela Bajaria. Netflix named Peter Rice as Bajaria’s replacement within a larger overhaul of content leadership. On the Q3 earnings call, Sarandos praised Bajaria but said, “I know that we could do better.”

Ahead of the Q3 earnings report, Netflix laid off 1,000 workers, or 6% of its headcount. Executives said the cuts would give the company more capacity to invest in growth areas.

The short-form countercase

Some Wall Street analysts argue that hits alone will not solve Netflix’s engagement problem. They want the company to address short-form video, where YouTube, TikTok and Instagram absorb young viewers’ attention.

In an Oct. 20 research note, New Street Research analyst Dan Salmon urged Wall Street to remain skeptical of a long-term strategy that only reinforces Netflix’s legacy core—premium television, films and, increasingly, live events—while the service remains largely absent from mobile and short-form video. Salmon identified those areas as among the fastest-growing parts of video entertainment.

He said YouTube continues to gain viewing share on connected television through a strategy spanning every content type and format. Netflix should not copy a straight user-generated-content model, Salmon said, but bold thinking is needed to protect its mindshare (audience attention and cultural relevance) among younger viewers.

Pivotal Research Group’s Jeff Wlodarczak said short-form entertainment “is doing to streaming what streaming has done to traditional Pay TV.” He tied that warning to younger consumers spending more time on social platforms. After Netflix’s Q3 report, he reduced subscriber forecasts, raised programming-cost forecasts and cut his year-end 2026 target by $5, to $65.

Games without mention

Netflix once promoted videogames as a promising extension of its core service. Games received no mention on the Q3 earnings call, apart from a shareholder-letter note that Netflix had teamed up with Take-Two Interactive to unveil an August sneak peek of the highly anticipated title Grand Theft Auto VI.

The scale behind the bullish case

Netflix has more than 325 million global subscribers. MoffettNathanson analyst Robert Fishman said that scale leaves the core streaming business well positioned to keep growing, though more slowly. He believes Netflix can monetize its leading subscription video on demand (SVOD) scale and compound profits for years.

• 2027 earnings per share: $3.85, revised down from $4.00.
• 2028 earnings per share: $4.65, up 21%, but below the previous $4.80 forecast.
• Rating and target: Buy, with the 12-month price target lowered by $10 to $90 a share.

Wedbush Securities analyst Alicia Reese was also bullish. She said the details showed Netflix was not beholden to industry headwinds but remained in control. She cited four signs: churn and pricing held up; ad demand remained intact; Netflix was expanding its live-events inventory; and it would preserve its content strategy rather than duel YouTube in short-form.

She saw management’s tone signaling a shift toward a platform model as licensing partnerships and add-on deals broaden, alongside a reacceleration of the ad rollout. Because Netflix has significant potential to expand ad revenue, Wedbush kept its outperform rating but cut its price target from $90 to $80 a share.

The price targets frame the disagreement

The revised targets map the disagreement: $65 at Pivotal, $80 at Wedbush and $90 at MoffettNathanson. Pivotal cut subscriber forecasts and raised programming-cost forecasts; Wedbush and MoffettNathanson also lowered their targets. The common issue is execution: hits must restore engagement, and delayed ad products must catch up.

Netflix’s practical challenge is to strengthen its core slate without weakening the pricing and churn signals Reese cited. Sarandos is betting on premium television, films and live events; Salmon and Wlodarczak want a firmer answer to short-form video.

The next test is concrete: Netflix must deliver its $2.7 billion advertising forecast while keeping churn and pricing stable. Success would support Reese’s $80 and Fishman’s $90 targets; continued product delays would make Wlodarczak’s $65 target harder to dismiss.