Streaming giant Netflix Inc. reported its third quarter results after market hours on Tuesday, October 20, which were largely in-line with expectations. However, the street was disappointed with the company’s guidance on revenue growth and the advertising business, leading to the stock dropping as much as 7% in extended trading.
Revenue for the quarter stood at $12.87 billion, exactly what analysts had projected, while its Earnings Per Share of $0.87 was marginally higher than the $0.82 projection. Revenue growth slowed for the third straight quarter at 12% year-on-year.
For the fourth quarter, Netflix expects revenue of $13.44 billion, which will be driven by growth in memberships, pricing and ad revenue. This implies a 11% growth year-on-year, and if the numbers hold, it will be the fourth straight quarter of slowing revenue growth for the company.
The management attributed the sales shortfall to its advertising business, which is likely to deliver $300 million lesser than what the company had anticipated.
Greg Peters, the new Netflix Co-CEO said that the company can do better and “that better is our upside.”
The street is also worried over Netflix’s prospects after a slew of top management changes. Chief Content Officer Bela Bajaria and film chief Dan Lin were fired recently, soon after the company had shed 6% of its workforce or over 1,000 people, the first time since 2022, when it reported a quarterly subscriber loss in more than a decade.
Netflix expects operating margin of 26% during the fourth quarter, which will be impacted by costs associated with these job cuts. Netflix continues to be a leader in subscribers, with more than 325 million of them, equating to nearly 1 billion views, according to the company.
Bajaria has already been replaced by Peter Rice, who earlier served as Chairman of General Entertainment at Walt Disney Co., and at 21st Century Fox.
Shares of Netflix have underperformed ever since they lost the bid to acquire the streaming and studios business of Warner Bros. Discovery Inc. The stock has dropped over 25% year-to-date and is down over 40% from last year.
Ratings of Netflix also remain a concern as the share of US TV viewership remains at 7.8%, according to Nielsen, far behind YouTube’s 14%. Viewers also watched only 2% more programming in the first half of the year, compared to the year-ago period.
Shares of Netflix fell over 7% in extended trading to levels sub-$64 a share after results were announced.