Netflix sinks following disappointing outlook as investors wait for more ad growth
Netflix shares are down more than 10% on Friday morning.
Streaming giant Netflix skidded more than 10% on Friday, on pace for its worst day since October 2025.
The announcement of cofounder Reed Hastings’ exit from the board in June, lower-than-expected Q2 guidance, and an unchanged annual outlook — despite the company’s exit from the Warner Bros. Discovery bidding war — appear to be driving the drop. As Citi analyst Jason Bazinet wrote in a Friday note:
“After large scale M&A was called off, investors suspected NFLX may increase its share repurchases and raise its FY26 margin outlook, which incorporated 50 bps of M&A expenses. In addition, some investors suspected the US price hike was previously not incorporated in the guide. However, management suggested no change to their capital allocation strategy, maintained FY26 outlook, and provided worse-than expected 2Q26 guidance.”
Unlike investors, analysts, for the most part, don’t appear too worried. JPMorgan reiterated its “overweight” rating and $118 price target, writing that Netflix “continues to execute well, with considerable growth headroom.”
Morgan Stanley similarly reiterated its “overweight” rating and $115 price target, writing that it expects the company’s recent price hikes and advertising revenue growth to land in the second half of the year.
As Morgan Stanley pointed out, Netflix on Thursday said its ad-supported tier now represents 60% of its new sign-ups (up from 50% in 2024) in the 12 countries where it’s offered. Netflix also said it now works with more than 4,000 advertisers, an increase of 70% from last year.
But, according to eMarketer Senior Analyst Ross Benes, that ad business — which Netflix still plans to grow to $3 billion this year — isn’t growing at the rate many first expected when it was launched:
“With the legacy media asset lifted off its shoulders, Netflix’s next challenge will be to truly diversify away from having subscriptions account for almost the entirety of its revenue. The continual subscription price increases bely how reliant Netflix is on subscription revenues and consumers continuing to stick around despite rising frustration for getting less bang for their buck. Ads is growing but not as to the rate marketers expected more than four years ago when the ad tier was launched. As the company enters a new era without Reed Hastings, advertising will play a bigger role. There's no better time to amplify an ads business than right now with the upfronts looming.”
