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Why Netflix Stock Dropped Today
Key Points
Netflix's revenue growth rate is decelerating.
YouTube and other cheaper streaming options are partly to blame.
Shares of Netflix (NASDAQ:NFLX) fell more than 5% on Wednesday after the streaming leader cut its sales forecast for its increasingly crucial advertising business.
Image source: Netflix.
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Slowing growth
Netflix's revenue rose 12% year over year to $12.9 billion in the third quarter. That marked a significant deceleration from the 17% growth the streaming giant delivered in the third quarter of 2025.
Netflix said membership additions, price hikes, and the expansion of its advertising platform drove the gains.
Notably, Netflix's operating margin improved to 34.6% from 28.2% in the year-ago quarter. However, the company said these profitability gains were mostly due to the timing of certain expenses.
All told, Netflix's earnings per share jumped 47% to $0.87. That bested Wall Street's estimates, which had called for per-share profits of $0.82.
Fierce competition
Investors, however, appeared to focus more on Netflix's guidance. Management now expects full-year ad revenue of roughly $2.7 billion, down from a prior forecast of $3 billion.
Netflix's less expensive ad-supported plans are seen as a way for it to attract increasingly budget-conscious consumers and fend off intensifying competition from Alphabet's YouTube and other streaming rivals.
Netflix is reportedly laying off about 6% of its workforce to invest more in content and technology, according to CNBC. The company also recently replaced its chief content officer, Bela Bajaria, with former Disney executive Peter Rice.
But judging by the stock's performance today, investors aren't sure these moves will be enough to bolster Netflix's competitive position.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.