Earnings Surged as Subscribers Watch Netflix for 97 billion Hours
Netflix revenue climbs in the second quarter (Q2) of financial year 2026 as the company’s global subscribers watch more than 97 billion hours in the first six months.
Details from Netflix earnings released in 2Q26 showed diluted earnings per share (EPS) rose by 11.1% year on year to $0.80, in line with consensus.
However, analysts said the company’s earnings per share outperformed the $0.80 EPS estimate from Bloomberg and were slightly ahead of management guidance.
Netflix revenue increased 13.4% y/y to $12.56 billion, which was in line with Bloomberg’s $12.58 billion estimate, supported by membership growth, pricing and advertising revenue, with all geographic regions delivering double-digit growth.
Operating income increased 11% year on year to $4.19 billion, according to its financial statement, slightly above the $4.13 billion projection by Bloomberg, while the operating margin of 33.4% exceeded management guidance due to favourable expense timing.
However, the company’s free cash flow declined to $1.53 billion from $2.27 billion in the equivalent period in 2025, partly reflecting higher tax payments, while the balance sheet remained strong with cash and cash equivalents of $9.1 billion, First National Bank stockbroking and portfolio management (FNB SPM) said in a review.
In the period, Netflix’s capital returns accelerated materially, with $4.7 billion of share buybacks completed during the quarter, leaving $27.1 billion available under existing authorisations.
Management expects 3Q26 revenue growth of 12% and maintained its full-year operating margin target of 31.5%, while narrowing full-year revenue guidance to between $51 billion and $51.4 billion.
“This was a resilient result with earnings coming in ahead of management’s guidance, while revenue grew in line; overall growth was driven by healthy membership trends, pricing actions and increasing advertising revenue, while engagement remained strong across the platform.
“The operating margin also surprised positively, benefiting from slower expense growth and favourable content amortisation timing”, FNB stockbroking and portfolio management unit said in its review.
However, the market reacted negatively to the softer-than-expected 3Q26 revenue outlook, marking a second consecutive quarter of moderating growth expectations.
The group continued to deliver increasing value to members with healthy acquisition and retention trends, as detailed in the group’s bi-annual
Netflix subscribers watched more than 97 billion hours in the first half of 2026 (+2% y/y), slightly faster than the 1.5% growth in 2025, despite the competitive impact of this year’s Winter Olympics and World Cup.
Encouragingly, management remains confident in the long-term strategy, supported by strong member engagement, successful pricing initiatives and rapid progress in the advertising business.
Advertising remains a key growth priority, with management expecting approximately $3 billion in ad revenue during 2026.
The combination of significant cash generation, a large buyback programme and a strong balance sheet provides ample flexibility to invest in content, technology and potential strategic opportunities while continuing to enhance shareholder returns.
Netflix is trading at a forward PE of 20.1x. While this remains above peer multiples, it is well below its five-year historic average, analysts at FNB stockbroking and portfolio management said.
