Brief Overview
Netflix Inc (NFLX) reported 3Q26 results that were broadly in line with expectations, with revenue rising 12% year-on-year, driven by membership growth, higher pricing and increased advertising revenue. Adjusted profit after tax and minority interests (PATMI) slightly exceeded expectations due to the timing of operating expenses. On a nine-month basis, 9M26 revenue and adjusted PATMI reached 74% and 75% of Phillip Securities Research’s FY26 estimates, respectively. However, 4Q26 revenue growth guidance of 11.5% year-on-year implies a fourth consecutive quarter of decelerating growth, while FY26 advertising revenue guidance was lowered by 10%, from US$3 billion to US$2.7 billion, owing to a slower-than-expected rollout.
Investment Positives
Pricing Power Remains on Display
Netflix continues to demonstrate strong pricing power, having implemented subscription price increases across multiple markets. This trend is consistent with the response observed following its US price increase in March, underscoring the platform’s strong customer stickiness. Importantly, Netflix still offers one of the lowest costs per viewing hour among major streaming platforms in the United States. Phillip Securities Research believes there remains room for further price increases, which would provide a meaningful lever for revenue growth going forward. The ability to raise prices without significantly eroding subscriber numbers speaks to the quality and breadth of content that Netflix provides, and sets the company apart from many of its competitors.
Advertising Remains a Key Growth Driver
Despite a 10% downward revision in FY26 advertising revenue guidance — from US$3 billion to US$2.7 billion due to rollout delays — the revised figure still represents robust growth of approximately 80% year-on-year. Phillip Securities Research remains positive on Netflix’s advertising potential, supported by improving monetisation capabilities. The planned rollout of ad-supported tiers across 15 additional countries in FY27 should further broaden Netflix’s addressable market. Advertising provides Netflix with an additional monetisation lever, particularly in price-sensitive markets, supporting both revenue growth and diversification beyond subscription fees. This dual revenue model — subscription and advertising — strengthens the long-term earnings profile of the company.
Investment Challenges
Weakening Engagement and Soft Guidance
The most significant near-term concern is weakening viewer engagement. Netflix’s guided 4Q26 revenue growth of 11.5% year-on-year marks the fourth consecutive quarter of deceleration. Viewing hours grew just 2% year –on year, suggesting a decline in average viewing time per subscriber. Phillip Securities Research attributes this softness to two factors. First, there has been a lack of blockbuster titles matching the success of FY25 hits such as Stranger Things, Squid Game and Demon Hunters. Second, there is intensifying competition for screen time from platforms such as YouTube and TikTok. We believe sustained engagement weakness could eventually erode Netflix’s pricing power and longer-term revenue growth, making this a critical metric to monitor in coming quarters.
Outlook
Netflix guided US$13.4 billion in revenue for 4Q26, representing growth of 11.5% year-on-year. The company expects 4Q26 operating margin to expand by 150 basis points to 26.0%. Looking further ahead, FY26 revenue growth remains in the range of 13–14%.
Phillip Securities Research remains cautiously positive on Netflix’s long-term outlook, supported by its strong pricing power and industry-leading profitability. However, near-term growth is likely to remain subdued amid weakening viewer engagement, a softer content slate and intensifying competition for screen time. In response, Netflix recently announced a major restructuring, including approximately 1,000 job cuts and senior leadership changes, notably the appointment of former Disney executive Peter Rice as Chief Content Officer. This signals a strategic reset in its content approach, although meaningful improvements in engagement and growth will likely take time to materialise. We believe a reacceleration in viewing hours and advertising monetisation will be key catalysts for a share price recovery. The recent pullback has created an attractive opportunity for investors to build a position, with Netflix trading at a FY26 forward P/E at 18.3 times compared with previously 31.2 times.
Recommendation and Target Price
Phillip Securities Research maintains a BUY recommendation on Netflix with a lower target price of US$100, down from the previous target of US$110. The reduction reflects a 2% and 1% cut to FY26 revenue and PATMI estimates, respectively, due to slower growth. The terminal growth assumption has also been lowered from 3.5% to 3%. Despite the target price reduction, we continue to favour Netflix’s strong pricing power, promising advertising potential and industry-leading profitability.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
Frequently Asked Questions
Q: What is Phillip Securities Research's recommendation and target price for Netflix?
A: Phillip Securities Research maintains a BUY recommendation with a lower target price of US$100, down from the previous US$110.
Q: Why was the target price reduced?
A: The target price was reduced because FY26 revenue and PATMI estimates were lowered by 2% and 1% respectively, and the terminal growth assumption was cut from 3.5% to 3% due to slower growth.
Q: How did Netflix perform in 3Q26?
A: Revenue rose 12% year on year, driven by membership growth, higher pricing and increased advertising revenue. Adjusted PATMI slightly outperformed expectations due to the timing of operating expenses.
Q: Why is weakening engagement a concern?
A: Viewing hours grew just 2% year on year, suggesting a decline in average viewing time per subscriber. This is attributed to a lack of blockbuster titles and intensifying competition from platforms such as YouTube and TikTok.
Q: What is happening with Netflix's advertising business?
A: FY26 advertising revenue guidance was lowered by 10% from US$3 billion to US$2.7 billion due to a slower-than-expected rollout. However, this still represents approximately 80% year-on-year growth, and ad-supported tiers are planned for 15 additional countries in FY27.
Q: What restructuring has Netflix undertaken?
A: Netflix announced approximately 1,000 job cuts and senior leadership changes, including the appointment of former Disney executive Peter Rice as Chief Content Officer, signalling a strategic reset in its content approach.
Q: What is the 4Q26 guidance?
A: Netflix guided US$13.4 billion in revenue for 4Q26, representing 11.5% year-on-year growth, with an operating margin expected to increase by 150 basis points to 26.0%.
Q: How does Netflix's current valuation compare to its previous level?
A: Netflix's FY26 forward P/E has fallen to 18.3 times from 31.2 times previously, which we view as a good opportunity for investors to build a position.
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