Netflix’s strong earnings fail to dispel growth concerns; ad recovery key to the stock price

[Financial News] Hana Securities said on the 22nd that although Netflix’s third-quarter earnings exceeded market expectations, weakness in its advertising business and slower revenue growth would weigh on its share price.
Netflix’s third-quarter revenue was about $12.9 billion, up 12% year over year and in line with market estimates. Operating income rose 37% to about $4.5 billion, while earnings per share (EPS) of $0.87 topped expectations. By contrast, its fourth-quarter guidance—revenue of $13.4 billion, operating income of $3.5 billion and EPS of $0.67—fell short of market expectations.
The company also lowered its annual outlook as growth in its advertising business fell short of its initial target. Reflecting delays in launching new advertising products and integrating partners, Netflix cut its forecast for this year’s ad revenue from about $3 billion to $2.7 billion. It also lowered its annual revenue guidance to $51.1 billion, 0.2% below the midpoint of its previous forecast.
Lee Ki-hoon, an analyst at Hana Securities, noted, “Third-quarter revenue growth hit its lowest level in three years due to weakness in advertising and slowing growth,” adding, “If improvement in the advertising segment’s performance is delayed, the benefits of business expansion could also be delayed.” Netflix plans to launch ad-supported plans in 15 additional countries next March.
Revenue growth remained in double digits across regions, but concerns about the U.S. market persist. In the third quarter, revenue grew 11% in both the U.S. and Canada and Europe, the Middle East and Africa, 17% in Latin America, and 12% in Asia-Pacific.
The analyst said, “Growth in non-English-speaking regions is positive, but growth in the U.S., a key market, has not been as strong as expected, so it appears that tangible results will take time to materialize.”
The analyst also said that easing valuation pressure as a result of the share-price decline alone would not be enough to drive a rebound. “Following the earnings release, the share-price decline has brought the 2027 forward price-to-earnings (P/E) ratio to around 18 times,” the analyst said, but forecast that “given the lowered ad revenue guidance and slowing growth, the shares are likely to remain in a period of consolidation for now.”

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