Netflix Stock Drops After-Hours As Revenue Growth Slows Further And Q4 Sales Miss Expectations

• Netflix reported third-quarter revenue of $12.9 billion and earnings of $0.87 a share, topping Wall Street expectations of $0.82 per share.
• Revenue growth is projected to drop to 12% in the fourth quarter (down from 17.6% last year).
• Co-CEOs Ted Sarandos and Greg Peters recently cut 6% of the workforce (~1,000 employees) and replaced Chief Content Officer Bela Bajaria with veteran Disney executive Peter Rice.

Netflix Inc.(NFLX) on Tuesday reported third-quarter earnings that beat Wall Street expectations, but its shares fell 5% in after-hours trading after the streaming firm issued a soft revenue outlook for the fourth quarter, setting it up for the fourth consecutive period of decelerating sales growth.

The company reported $12.9 billion in third-quarter revenue, matching Wall Street forecasts, and its earnings at $0.87 a share topped expectations of $0.82 a share.

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Despite the bottom-line beat, Netflix shares slipped as much as 7% in after-hours trading following the announcement. 

Wall Street’s skepticism comes as the company works to reignite user engagement, scale its advertising layer, and adjust after failing to secure an acquisition of Warner Bros. Discovery Inc.’s studio and streaming assets earlier this year.

Netflix has been struggling to consistently boost streaming revenue and new member additions over the past few quarters amid increasing competition from rival streaming services and is boosting programming of original content to ensure new additions. 

Management Restructuring And Content Push

The earnings report follows a major operational overhaul led by Co-CEOs Ted Sarandos and Greg Peters. Over the past week, Netflix announced a 6% workforce reduction—eliminating about 1,000 roles—its largest headcount cut since 2022.

In a bid to address perceived declines in programming quality and stagnant engagement, the company ousted Chief Content Officer Bela Bajaria and film chief Dan Lin. To replace Bajaria, Netflix named Peter Rice, a seasoned industry executive who previously held leadership roles at both Walt Disney Co. and 21st Century Fox.

"With intense competition and an explosion of content competing for consumer attention, strategic clarity and excellent execution are critical," Netflix stated in its letter to shareholders, acknowledging that while core priorities are being met, "we see room to do even better."

Q4 Outlook

Looking ahead to the fourth quarter, Netflix projects revenue of $13.4 billion, falling short of Wall Street estimates of $13.5 billion.

Netflix also projected a fourth-quarter operating margin of 26%, noting that severance and restructuring costs tied to its recent job cuts will weigh on profitability in the final three months of the year.

NFLX Stock: Retail View 

Retail sentiment on Stocktwits was ‘bullish’ with ‘high’ message volumes. 

A user lauded the results and called Netflix a cash-generating machine and termed the sell-off as overdone. 

NFLX stock has lost 27% year-to-date.

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