Netflix's Third Quarter Expectations

The First Quarter Report is Crucial

Netflix (NFLX) will announce its third-quarter earnings after the market closes on Tuesday. Investors are looking for signs of momentum in the company's advertising business and live programming lineup after a volatile period.

Stock Performance and Market Relative

Shares have risen about 40% year-to-date; however, they have lagged behind the broader market and technology peers in recent months. This raises questions about increasing engagement, valuation, and new competition from AI-powered content platforms.

Wall Street Expectations

Bloomberg estimates for this quarter's expectations are as follows:

• Revenue: $11.52 billion, up from $9.82 billion last year; Netflix guide: $11.53 billion
• Earnings Per Share (EPS): $6.94, up from $5.40 last year; Netflix guide: $6.87

Netflix no longer reports detailed member growth metrics. However, analysts expect results to be supported by a steady content lineup and strong performance in live events business.

Featured Live Events

For example, the Canelo vs. Crawford fight attracted over 41 million global viewers, making it the most-watched men's championship boxing match of the century. Additionally, the animated hit film KPop Demon Hunters has garnered 325 million views, becoming the most-watched film in Netflix's history.

Investors are focusing on Netflix's advertising business, which is expected to become a dominant growth engine by 2026.

Competition and Developments

Netflix has recently expanded its integration with Amazon's advertising platform, offering advertisers new ways to acquire inventory on the platform. JPMorgan analyst Doug Anmuth noted that this move will support improvements in "advertiser registration, flexible purchasing, and measurement."

According to Anmuth, Netflix's advertising revenue is expected to rise from $1.4 billion in 2024 to $2.9 billion in 2025, and then to $4.2 billion in 2026.

Earlier this month, Netflix announced a new video podcast partnership with Spotify. This means certain programs from Spotify Studios and The Ringer will debut on Netflix in early 2026.

Valuation and Potential Risks

However, some investors point out that the high valuation of the stock reduces the margin for error. Netflix is trading at around 45 times its expected future earnings. JPMorgan and Citi analysts indicate that the necessary growth and engagement expectations are largely already reflected in the stock price.

Additionally, last month’s news that Paramount Skydance was evaluating a bid for Warner Bros. Discovery sparked discussions in the streaming market. Analysts note that it's unlikely Netflix will pursue such an acquisition.

Morgan Stanley analyst Ben Swinburne highlights long-term risks associated with creative artificial intelligence. While this technology is likely to shape video production and distribution in the future, it is not considered an immediate threat.

On the other hand, Elon Musk drew attention by calling for the cancellation of Netflix subscriptions, which caused the stock to lose 5% of its value.