Netflix posted third-quarter results that beat market expectations, but its quarterly revenue growth fell to the lowest level in three years. Shares dropped about 6% in after-hours trading following the earnings release on the 20th. Analysts say Netflix's high-cost strategy has succeeded in dominating the streaming industry but is losing ground to competitors outside that arena, such as YouTube and TikTok. Individual creators on those platforms use artificial intelligence to churn out cheap, algorithm-driven content such as short-form videos.
Netflix said third-quarter net profit rose about 44% to $3.66 billion from $2.55 billion a year earlier. Earnings per share came in at $0.87, above the market consensus of $0.82. Revenue rose 12% from a year earlier to $12.9 billion, in line with estimates. On a quarterly basis, however, that was the slowest revenue growth in three years.
The slower-than-expected expansion of the advertising business also weighed on the stock. Netflix lowered its advertising revenue forecast for this year to $2.7 billion from $3 billion. In a letter to shareholders, the company said the rollout of some advertising product features had come somewhat later than planned. In after-hours trading, the stock traded at $64.66, down more than 40% over the past year.
Netflix projected fourth-quarter revenue of $13.44 billion, an increase of more than 11% from a year earlier, driven by subscriber growth and higher advertising sales. It lowered its full-year revenue forecast to $51.1 billion, up 13% from a year earlier.
YouTube and TikTok, which compete with Netflix for viewing time, spend nothing directly on producing the content uploaded to their platforms. Netflix's competitive edge is also weakening as tools emerge that can generate a 30-second video from a single prompt, such as the Seedance AI video generation model unveiled in June by ByteDance, TikTok's parent company. Industry watchers say viewers accustomed to short-form videos are increasingly reluctant to binge-watch big-budget productions.
Netflix, for its part, says it will maintain large-scale investment in content including flagship series, films, live events and games. In its shareholder letter, the company said investment in differentiated, exclusive original content is its core strategy.
At the same time, Netflix has begun a major restructuring. The company recently decided to cut 1,000 jobs, or about 6% of its workforce, its largest reduction in four years. It replaced Chief Content Officer Bela Bajaria, who spent a decade at the company and helped develop titles such as "KPop Demon Hunters," with Peter Rice, a former executive at Disney and 21st Century Fox.