Strong quarter but bitter market reception
Netflix’s latest earnings statement was chock-full of good news—all-time high levels of viewing, healthy ad sales, and growing networks of partners. But instead of rising, Netflix shares crashed the moment the report was announced. Investors were not as smitten with the news and were more worried about what lay ahead.
The company stated that viewers’ “engagement remains healthy” as a result of a robust content slate in the third quarter. Among its biggest sensations was the Canelo vs. Crawford battle, which drew more than 41 million global viewers, the most-watched men’s boxing match of the century.
Netflix also hit an all-time high with animated blockbuster KPop Demon Hunters, most-watched film in Netflix history, attracting more than 325 million viewers. Those victories are a testament to Netflix’s ability to make blockbuster movies out of fresh, original ideas rather than relying on well-known franchises.
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Growing ad-supported business
Netflix’s $7.99 ad-supported offering continues to be a key growth driver. The company announced it had its highest quarter of ad sales ever, already seeing early signs that its new advertising strategy is yielding returns.
Executives said the ad-supported tier now offers a “solid foundation” for future expansion, as ad revenue is set to more than double in 2025. It comes after a U.S. upfront where advertising commitments doubled year-on-year.
To render advertisements more attractive to advertisers, Netflix recently amplified ad appeal through a new partnership with Amazon’s DSP (Demand-Side Platform). The merge makes it easier for advertisers to buy ad space on Netflix for 11 markets starting this quarter.
JPMorgan’s analysts view the move as ramping up flexibility and efficiency in ad buying, which will drive Netflix ad revenue from $1.4 billion in 2024 to $2.9 billion in 2025, before growing another 45% to $4.2 billion by 2026.
New partnerships and greater reach
Netflix announced last week a video podcast agreement with Spotify, another sign of its willingness to expand its content strategy. Some of Spotify’s largest podcasts — including The Bill Simmons Podcast, The Rewatchables, and Serial Killers — will also appear on Netflix starting in early 2026.
This partnership might bring in new audience and retain existing subscribers more active. Yet, according to analysts, it will take some time before such initiatives are reflected in significant revenue increases.
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Valuation worries and market nerves
Despite its strong foundations, Netflix shares dropped around 5% after the report. Reason: doubts about valuation. Even after recent pullbacks, the stock continues to command a premium price of nearly 45 times forward earnings, a rich multiple compared to other technology and media stocks.
Investors are questioning whether Netflix’s growth prospects are worth paying this high price, especially as new players to the streaming space — including AI-fueled content platforms — begin to appear.
Aiding rumor mill, Warner Bros. Discovery last week revealed it had received offers to buy out its studio division, suggesting that Netflix might be among the suitors. But executives at Netflix were quick to kill any rumors of buying “legacy media networks” that suggested the company is set on preserving its streaming-first focus.
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Controversy and public backlash
The firm also garnered some brief short-term controversy after Elon Musk encouraged customers to unsubscribe from Netflix as the service promotes “woke” material. The backlash helped shares temporarily fall 5%, but criticism soon came to an end.
Despite the downturn, analysts argue that Netflix remains in a strong position. The company remains at the top of world streaming, raising its ad business, and expanding its partnerships — but with expectations running high and competition advancing rapidly, investors are becoming anxious to pay the premium for future growth.
In summary: Netflix’s most recent results show a well-performing business but one that is under strain from a demanding marketplace. Good content and growing ad revenue were not enough to mollify valuation and growth fears over the long term — and that’s why the stock declined after reporting earnings.
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