Netflix (NFLX) shares fell 5% on Wednesday after the streaming giant slashed its 2026 advertising revenue target and issued weaker-than-expected fourth-quarter guidance, spooking investors despite a broadly solid third-quarter performance.
Wedbush Securities kept its Outperform rating on the stock but cut its price target to $80 from $90, saying the growth slowdown was fixable and the selloff overdone.
Solid quarter
Third-quarter revenue grew 12% year-on-year to $12.874 billion, in line with estimates, while earnings per share of $0.87 rose 49% and beat guidance of $0.82.
Gross margin of 52.8% came in above forecasts, free cash flow hit $2.9 billion, and Netflix bought back a record $4.8 billion of its own shares during the quarter.
Weak outlook
The problem was the guidance issued late Tuesday after the market closed.
Netflix forecast fourth-quarter revenue of $13.442 billion, below the $13.515 billion analysts had expected, and guided for an operating margin of 26%, well short of the 27.6% consensus.
Most damagingly, it cut its 2026 advertising revenue target to approximately $2.7 billion from $3 billion, blaming delays to ad product rollouts and partner integrations.
The company also lowered its 2026 free cash flow forecast to around $12 billion from $12.5 billion after committing to a studio lot acquisition expected to close in the fourth quarter.
Netflix did reaffirm its full-year 2026 operating margin target of 31.5% and said annual revenue would land at the low end of its $51 billion to $51.4 billion guidance range.
Still in control
Wedbush argued the numbers reflected a digestion period following strong growth in 2025 and early 2026 rather than any structural damage to the business.
Churn and pricing held up, ad demand remained intact, and Netflix signalled a strategic shift toward a platform model, expanding licensing partnerships and add-on deals alongside plans to reaccelerate its advertising rollout.
The bank based its revised $80 price target on 17 times its 2028 earnings per share estimate, down from 19 times previously, calling it a near-trough valuation as Netflix finds its way back to stronger growth.
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