Netflix shares drop 7.3% as Q2 earnings beat estimates but growth outlook slows
Revenue rose 13% to $12.56 billion and adjusted EPS climbed to $0.80, surpassing LSEG consensus, yet investors reacted negatively to management’s guidance for third-quarter growth to decelerate.
Netflix shares fell 7.3% on Friday following the release of its second-quarter financial results, continuing a sharp downward trajectory for the streaming provider. Despite reporting figures that exceeded analyst expectations, the market reaction was subdued, with the stock now down more than 26% year-to-date in 2026 and nearly 50% over the past twelve months. The decline underscores investor concerns regarding the company’s strategic pivot away from pure subscriber growth towards a model resembling traditional cable networks, driven by price hikes and an increased reliance on advertising.
The company reported second-quarter revenue of $12.56 billion, representing a 13% increase, while adjusted earnings per share (EPS) rose 11% to $0.80. These results beat consensus estimates compiled by the London Stock Exchange Group (LSEG), which had projected revenue of $12.59 billion and EPS of $0.79. Revenue growth remained consistent across major regions, ranging from 14% in the United States and Canada to 20% in the Asia-Pacific region.
However, the positive top-line and bottom-line performance was overshadowed by cautious forward guidance. Management forecasted that third-quarter revenue growth would slow to below 12%, with EPS expected to reach $0.82. This deceleration in growth rates has contributed to the stock trading at a forward price-to-earnings ratio of approximately 20 times analysts' 2026 estimates, a valuation that reflects a transition from high-growth disruptor to a more mature, utility-like media operator.
A significant factor in the market’s reassessment of Netflix is the company’s reduced transparency and shifting content strategy. Netflix ceased reporting quarterly subscriber numbers last year and plans to reduce viewership data reporting from twice a year to once annually starting next year. During the first half of 2026, viewing hours grew by just 2%, a marginal improvement from the 1.5% growth recorded in the first half of 2025.
Simultaneously, the company is increasing its focus on live events and advertising, areas where it competes more directly with linear television. Live programming is expected to account for over 5% of content spending this year, despite representing only 1% of viewing hours. Management stated it is in the "advanced stages" of securing upfront advertising commitments in the United States, aiming to leverage live content to drive new member sign-ups and support its ad-supported subscription tiers.
