Netflix Q3 Revenue Rises 12% as Margin Hits 34.6%; Job Cuts Weigh on Q4

Netflix reported third-quarter 2026 results on Oct. 20 in a shareholder letter filed with the Securities and Exchange Commission. Revenue rose 12% from a year earlier to $12.9 billion, and operating margin reached 34.6%, up from 28.2% in the third quarter of 2025. The same letter gave a fourth-quarter forecast that includes a drag from job cuts the company announced on Oct. 14.

For business readers, the release shows steady revenue growth alongside higher profitability. The newest detail is the company's estimate of how its staff reduction weighs on margins in the fourth quarter and for the full year.

Revenue Growth Holds at 12% as Operating Margin Climbs

Third-quarter revenue was $12,874 million, up 12% year over year from $11,510 million, and up 11% on a currency-neutral basis. The letter says the result was consistent with the company's forecast. Operating income was $4,459 million, or $4.5 billion, up 37%. Diluted earnings per share were $0.87, compared with $0.59 in the third quarter of 2025.

The 34.6% operating margin beat the company's own forecast. The letter attributes the beat mainly to the timing of expenses and a slight upside in revenue. For full-year 2026, Netflix now expects revenue of about $51.1 billion, up 13%, and an operating margin of 31.5%, compared with 29.5% in 2025. Full-year revenue is 0.2% below the midpoint of the prior range, according to the letter.

Churn Improves While Advertising and Cash Flow Estimates Fall

The letter says churn improved year over year, both globally and in the United States, and was better than the company's forecast. It does not publish monthly churn figures, so the size of the improvement cannot be measured from the release. The churn comments are qualitative only.

Two full-year estimates moved down. Advertising revenue for 2026 is now expected at about $2.7 billion, down from approximately $3 billion. The letter cites a slightly slower-than-expected rollout of some ad product capabilities. Free cash flow was lowered to about $12.0 billion from $12.5 billion, mainly because of an expected real estate transaction closing in the fourth quarter.

How the 6% Staff Cut Feeds Into Margins

On Oct. 14, co-CEOs Greg Peters and Ted Sarandos told employees in a memo, obtained by The Associated Press, that about 6% of the workforce, nearly 1,000 positions, would be cut as part of broader organizational changes. Product, technology, legal and human resources are the most affected teams. The memo said the decisions were difficult and that the business is strong, while Netflix must be disciplined about where it prioritizes its people and resources. AP cites about 16,000 full-time employees at the end of 2025. Netflix declined to comment beyond the memo.

Before the announcement, The A.V. Club, citing Puck News, had reported on Oct. 9 a cut of about 5%, or roughly 850 jobs, based on an estimate of 17,000 workers worldwide. The Puck report relied on anonymous sources. A Netflix representative declined to comment, and it was unclear which departments would be most affected.

The shareholder letter quantifies the margin effect. Its fourth-quarter operating margin forecast of 26.0%, compared with 24.5% a year earlier, includes about 120 basis points of drag from the reductions. Forecast operating income for the quarter is $3.5 billion. The full-year 31.5% margin includes about 30 basis points of drag. The letter refers to recently announced headcount reductions and does not mention a restructuring charge. It gives no dollar figure for restructuring charges.

What Readers Should Watch Into the Fourth-Quarter Report

The next test is the fourth-quarter and full-year 2026 report. It will show whether the 26.0% margin forecast holds and whether the fourth-quarter real estate transaction closes as expected. Readers will also look for the restructuring charge amount and monthly churn figures, neither of which the letter provides.

Before the cuts were announced, ABC30 reported second-quarter 2026 earnings of $3.4 billion and revenue of $12.56 billion, up 9% and 13% year over year. The same report said the third-quarter forecast had fallen below Wall Street expectations.

For investors, the fourth-quarter and full-year numbers are company forecasts, and the third-quarter margin beat was attributed mainly to expense timing. For competing streamers, the letter's churn comments are qualitative only.