Netflix Shares Fall 29% YTD Despite Record Buyback and Margin Gains

Netflix shares have declined 29% year to date, a performance that lags the broader market despite the company reporting a third-quarter earnings beat and executing its largest stock buyback to date. The stock slid to $66.29 in recent afternoon trading, extending a trend that has left investors questioning the streaming leader's trajectory.

The underperformance is stark when compared to sector benchmarks. The Communication Services Select Sector SPDR ETF (XLC), which holds Netflix, is down 9% year to date, while the SPDR S&P 500 ETF Trust (SPY) has gained 12% over the same period. In contrast, rival Roku (ROKU) shares are up 47% to $159.26, highlighting a widening valuation gap between the two streaming platforms. Walt Disney (DIS), another competitor for subscription dollars, is down 1% year to date.

Netflix’s Q3 2026 report showed GAAP earnings of $0.87 per share, exceeding the consensus estimate of $0.8229. Revenue landed in line with expectations, and operating margins expanded to 34.6% from 28.2% a year earlier, aided in part by the timing of expense recognition. Operating income climbed 37% to $4.46 billion. The company also repurchased $4.8 billion of its own stock, marking its largest buyback quarter ever.

However, investor sentiment turned negative following guidance for the fourth quarter and full year. Management issued a Q4 revenue forecast of $13.4 billion that disappointed the market. Additionally, Netflix reduced its projected advertising revenue for 2026 from $3 billion to approximately $2.7 billion, attributing the change to delays in deploying its advertising tools. Co-CEO Greg Peters characterized the setback as a temporary cost that will improve the company's long-term strategic standing. The company also lowered its full-year free cash flow forecast to $12 billion from $12.5 billion due to a Q4 real estate transaction.

The divergence between Netflix and Roku stems from their distinct revenue models. Netflix earns nearly all its revenue from streaming subscriptions and an ad-supported tier, while Roku generates most of its sales from advertising and platform fees. Although Disney competes directly for subscribers, its recent licensing deal brings current and library titles to Netflix.

Bullish arguments for Netflix center on its profitability and scale, with shares currently trading at a trailing P/E ratio of 25x. Management describes its churn management as "industry-leading." However, bears point to execution risks, including management's admission that it is "not satisfied" with view-hour growth. Q4 margin guidance includes 120 basis points of pressure tied to recent job cuts.

Co-CEO Ted Sarandos stated on the earnings call that the company needs better execution in the U.S., where content is currently "largely working" in other regions. A holiday slate featuring Christmas Day NFL games and the final season of Emily in Paris offers a near-term opportunity to boost viewing. Netflix plans to expand its ad-supported tier into 15 new countries in 2027 and will provide 2027 guidance with its fourth-quarter report.