Netflix slips 9% after soft Q3 outlook despite Q2 beat

Netflix beat expectations in Q2, then lost investors on what came next. The company reported $12.56bn in second-quarter revenue on Thursday, up 13% year over year, with earnings of $0.80 a share — a cent above the $0.79 analysts expected. But its Q3 forecast came in light, and the stock fell about 9% in after-hours trading.

Netflix said it expects third-quarter revenue of $12.86bn, roughly 12% growth but below the $13bn Wall Street had modeled. Projected earnings of $0.82 a share also missed the $0.84 consensus.

On the quarter itself, results were close to target. Analysts had looked for about $12.58bn in revenue and $0.79 a share in earnings, while Netflix delivered slightly under on revenue and slightly over on profit, with operating margin broadly in line.

The selloff was driven almost entirely by the outlook. That reaction was amplified by the stock’s run-up ahead of earnings, leaving little room for guidance that merely kept pace instead of beating expectations. A 12% growth rate in Q3 would mark Netflix’s slowest quarterly growth in about three years.

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Ads, engagement, and slower growth

The ad-supported tier remains central to Netflix’s next phase, but it is still scaling rather than fully replacing the subscriber story the company stopped reporting in 2025. Netflix said its ads business should generate about $3bn this year, close to double the 2025 figure, though that is still a small share of a revenue base heading toward $51bn.

Engagement held up better. Members watched more than 97 billion hours of content in the first half of 2026, up about 2% from a year earlier. Netflix also said live programming should account for just over 5% of content spending but only about 1% of viewing hours.

The company added that it has been using generative AI to help manage its growing content library. It also said its “What We Watched” report will move from a twice-yearly release to an annual one, framing the change as a way to keep focus on revenue and operating profit.

Margins stay solid as buybacks continue

Profitability was steadier than growth. Operating margin was 33.4%, down slightly year over year. Net income reached $3.4bn, while free cash flow fell to about $1.5bn from $2.3bn a year earlier as content spending picked back up.

Netflix also repurchased a record $4.7bn of stock during the quarter. For the full year, it narrowed its revenue guidance to $51bn to $51.4bn, from $50.7bn to $51.7bn previously. The midpoint, around $51.2bn, was effectively unchanged.

That leaves the next real test in October, when Netflix reports third-quarter results against the guidance that just knocked its shares lower.