Netflix stock falls 9% after weak Q3 forecast

Netflix shares fell about 9% in after-hours trading after the company issued a third-quarter revenue and earnings forecast below analyst expectations and reported a drop in free cash flow.

The company projected third-quarter revenue of $12.9 billion and diluted earnings of $0.82 per share, compared with Wall Street estimates near $13.0 billion and $0.84. For the second quarter, revenue rose 13.4% to $12.6 billion and diluted earnings were $0.80, an 11% increase year over year. Operating income was $4.2 billion and the operating margin was 33.4%, above the company’s forecast. Free cash flow declined to $1.5 billion from $2.3 billion a year earlier, below roughly $2.9 billion analysts had expected.

Netflix narrowed its full-year revenue range to $51.0 billion-$51.4 billion from $50.7 billion-$51.7 billion while keeping the midpoint at $51.2 billion. The company reiterated targets for roughly 13%-14% annual sales growth, a 31.5% operating margin and more than 20% growth in operating income. It expects third-quarter revenue growth to slow to 11.7%, down from 16.2% in the first quarter and 13.4% in the second, the weakest quarterly growth rate since late 2023.

On engagement, members watched more than 97 billion hours in the first half, up 2% from a year earlier. The company announced plans to stop reporting subscriber totals in 2025 and to publish viewing data annually starting in 2027.

Paolo Pescatore of PP Foresight described the forecast as cautious and consistent with a maturing growth profile, and said management faces less room for error given high investor expectations. A TipRanks investor using the name Long Player argued the one-cent earnings beat was not enough for a company valued as a high-growth platform and highlighted the decline in free cash flow.

Market participants noted that a revaluation of Netflix as a mature entertainment company could reduce the earnings multiple applied to the stock, a factor analysts linked to potential further pressure on the share price even if profits do not fall.