Netflix third quarter 2026 earnings explained: regions, EPS and valuation multiples

Netflix reported its third quarter 2026 results on October 20, 2026. Revenue for the three months ended September 30 rose 2.5% from the quarter before, operating income rose 6.3% and net income rose 7.7% (Dalsna Finance calculation). Against the same quarter of 2025 revenue grew 12%, as reported by Netflix. This article walks through what Netflix does, how its four regions performed and what the numbers say about its valuation. Every figure is sourced and dated, and every number worked out by us is labelled as a Dalsna Finance calculation. ^[1][2]

Netflix in brief

Netflix, Inc. is based in Los Gatos, California, and its shares trade on the Nasdaq Global Select Market under the ticker NFLX. It streams series, films and live events and earns money from monthly subscription fees and from advertising. At September 30, 2026 its streaming plans, which include an ad supported plan, cost from the US dollar equivalent of $1 to $37 a month depending on the country and the features of the plan. Netflix split its stock ten for one on November 14, 2025, and every share and per share figure here is on the split basis, as Netflix reports it. ^[2][1]

Netflix pairs its own originals with licensed series and films from other studios and networks. In the letter it named a partnership with the French broadcaster TF1 that launched this summer and its NFL game from Melbourne among the quarter's events, and said it had recently secured a new licensing deal with Disney. It describes its audience as approaching one billion people. The letter gives no count of paid memberships for the quarter. It says membership growth benefited from healthy retention in every region and that churn, the share of members who cancel, improved from a year earlier. ^[1]

One segment, four regions

Netflix reports a single operating segment, so it has no business lines to compare in the way a company with several segments does. Instead it splits revenue by where members live: the United States and Canada (UCAN), Europe, the Middle East and Africa (EMEA), Latin America (LATAM) and Asia Pacific (APAC). ^[2][1]

UCAN brought in $5,628 million in the third quarter, or 43.7% of the total (Dalsna Finance calculation). Against the third quarter of 2025 Netflix reported revenue growth of 11% in UCAN, 11% in EMEA, 17% in LATAM and 12% in APAC. Excluding currency moves and hedging, which Netflix calls F/X neutral, the growth rates were 11%, 9%, 12% and 15%. The letter also says revenue in India grew about 18% from a year earlier on an F/X neutral basis and that India had its largest quarter ever of paid net additions. ^[1]

The numbers, quarter over quarter

Revenue was $12,874 million in the third quarter, against $12,560 million in the second. Cost of revenues, which Netflix says is primarily the amortization of its content, rose only 0.7%, so revenue minus cost of revenues rose 4.2% to $6,795 million. Operating income, which also takes off sales and marketing, technology and development and administrative costs, rose to $4,459 million from $4,193 million. Net income under GAAP, the standard US accounting rules, rose to $3,664 million from $3,401 million (Dalsna Finance calculation for gross profit and the changes). ^[1][2]

Profit margin is net income as a share of revenue: 28.5% in the third quarter against 27.1% in the second (Dalsna Finance calculation: $3,664 million divided by $12,874 million, and $3,401 million divided by $12,560 million). The operating margin, operating income divided by revenue, was 34.6% against 33.4%, as reported. Netflix said in the letter that "Our primary financial metrics are revenue for growth and operating margin for profitability." It said third quarter operating income and margin came in ahead of its own forecast primarily due to the timing of expenses and the slight upside in revenue. ^[1]

Netflix explains its results against the same quarter a year earlier, not against the quarter before. Its quarterly report says revenue rose 12% from the third quarter of 2025 primarily due to $1,057 million of growth in subscription revenue, reflecting more memberships and higher pricing, and a $256 million increase in advertising revenue. Cost of revenues fell from a year earlier, primarily because the 2025 quarter included a $619 million expense for non income tax assessments in Brazil. Net income rose 43.9% from $2,547 million and diluted EPS rose to $0.87 from $0.59 (Dalsna Finance calculation for the net income change). ^[2][1]

The tax bill took 15.1% of pretax income in the third quarter, against 16.4% in the second (Dalsna Finance calculation from the reported provision and income before income taxes). The quarterly report says the rate was lower than in the third quarter of 2025 primarily due to an increase in US federal research and development tax credit benefits. It gives no amount for that benefit. ^[2][1]

Earnings per share

Earnings per share, or EPS, is profit divided by the number of shares. The diluted figure also counts shares that could be created from stock awards. Netflix reported diluted EPS of $0.87 for the third quarter and $0.80 for the second. Dividing net income by the diluted share count gives the same figures. ^[1]

Netflix reports no adjusted net income and no adjusted EPS. Its non GAAP measures are F/X neutral revenue, adjusted operating profit and margin, free cash flow and net debt. Netflix defines free cash flow as cash provided by operating activities minus purchases of property and equipment. It was $2,884 million in the third quarter and $1,525 million in the second. So this article uses free cash flow as its second measure and calls it by that name. Per share, on the 4,106 million shares on the cover of the latest quarterly report, it was $0.70 for the third quarter and $0.37 for the second (Dalsna Finance calculation). It is a cash measure, not earnings. ^[1][2]

What the market values Netflix at

Market capitalization, or market cap, is what the stock market values the whole company at: the share price times the number of shares. Netflix shares closed at $62.08 on Friday, October 30, 2026, as reported by StockAnalysis. The cover of its third quarter report to the SEC lists 4,106,325,903 shares of common stock outstanding as of September 30, 2026. That gives a market cap of about $254.9 billion (Dalsna Finance calculation). Every multiple and share price below uses this one share count. ^[3][2]

Six valuation multiples

The price to earnings ratio, or P/E, is market cap divided by a year of earnings. It shows how many dollars the market is paying for each dollar of yearly profit. Annualised means one quarter multiplied by four. On that basis Netflix has a P/E of 17.4 (Dalsna Finance calculation: $254.9 billion divided by $3,664 million times 4, which is $14,656 million). The second measure divides market cap by free cash flow, and we call it market cap to free cash flow because free cash flow is not earnings. Third quarter free cash flow of $2,884 million times 4 is $11,534 million, which gives 22.1. ^[1][3][2]

A forward P/E uses an estimate of future earnings. Netflix publishes its own forecast, which it says is its actual internal forecast at the time it reports. For the fourth quarter of 2026 it forecast net income of $2,787 million and an operating margin of 26.0%, which includes about 120 basis points, or 1.2 percentage points, of negative impact from recently announced headcount reductions. Annualised, that forecast is $11,148 million of earnings and gives a forward P/E of 22.9 (Dalsna Finance calculation on a company projection). Netflix also forecasts free cash flow of about $12.0 billion for full year 2026, down from its prior $12.5 billion due primarily to a real estate transaction it expects to close in the fourth quarter. On that company projection market cap to forward free cash flow is 21.2. That full year figure includes the nine months already reported. ^[1][3][2]

A trailing P/E, sometimes called a historical P/E, uses the last four reported quarters. Adding Netflix's net income for the fourth quarter of 2025 through the third quarter of 2026 gives $14,767 million and a trailing P/E of 17.3 (Dalsna Finance calculation). That total includes the first quarter of 2026, when Netflix recorded a $2.8 billion termination fee in interest and other income, so the trailing P/E is lower than it would be without the fee. Netflix gave no after tax amount for the fee, so we do not take it out. Trailing free cash flow over the same four quarters was $11,375 million, which gives a market cap to trailing free cash flow of 22.4. The quarterly report says cash from operations in the first nine months of 2026 includes the fee. ^[1][2][3]

The last four quarters

Netflix's third quarter letter shows net income and free cash flow for each of the last five quarters, so every quarterly figure here is as reported and only the totals are added up by us. The first quarter of 2026 stands out. Netflix had agreed on December 4, 2025 to acquire the streaming and studios businesses of Warner Bros. Discovery, including HBO Max and HBO. On February 27, 2026 Warner Bros. Discovery ended the agreement, as its terms allowed, to sign a merger agreement with Paramount Skydance, and Netflix received a $2.8 billion termination fee. Netflix recorded the fee in interest and other income, which came to $2,947 million for the first nine months of 2026, against $127 million a year earlier. ^[1][2]

Two base cases: the third quarter held flat for a year

Suppose revenue stayed at the third quarter's level for a full year, with no growth and no decline: $12,874 million times 4, or $51,497 million. The first base case keeps the 28.5% profit margin, which gives earnings of $14,656 million, or $3.57 per share on the cover share count. This case is simply the latest quarter annualised, so at the annualised P/E it returns the October 30, 2026 close of $62.08 by construction. The other cells only show how the price moves when the same earnings are given a different multiple. ^[1][3][2]

Netflix itself treats operating margin as its main profit measure, so the second base case uses the 34.6% operating margin, which leaves out interest, taxes and other income altogether: $17,834 million a year, or $4.34 per share. Operating income is counted before tax, so this is not net income. We found no one time item inside third quarter operating income that Netflix put a figure on, so nothing else is taken out. The impact of the headcount reductions that Netflix included in its fourth quarter forecast falls in a later quarter and is not in these figures. ^[1][2]

There is no free cash flow base case. Netflix reports no adjusted earnings, and free cash flow is a cash measure, not earnings, so the base cases use net income and operating income only. The P/E multiples apply to both earnings rows. The market cap to free cash flow multiples do not apply to earnings, so they are left off the grid. ^[1]

What to watch

Netflix forecast fourth quarter revenue of $13.4 billion, up 12% from a year earlier, and full year 2026 revenue of $51.1 billion with an operating margin of 31.5%, against 29.5% in 2025. It now expects 2026 advertising revenue of about $2.7 billion, against about $3 billion previously, which it put down to some ad product features rolling out a little more slowly than expected. It plans to bring its ad supported plan to 15 more countries in 2027, starting in March 2027. These are the company's own projections as of October 20, 2026. The next report will show whether the fourth quarter lands on that forecast. ^[1]

Buybacks and debt are worth following too. Netflix bought back 63.9 million shares for $4.8 billion in the third quarter, its largest quarter of repurchases ever, and had $22.3 billion left under its authorizations. It ended the quarter with gross debt of $15.3 billion and cash and cash equivalents of $8.2 billion, after a $1 billion bond deal in the quarter to fund a $1 billion debt maturity in the fourth quarter. The quarterly report also lists $729 million of non routine payments in the first nine months of 2026 for non income tax assessments in Brazil for prior tax periods, and a business combination completed in March 2026 for about $587 million in cash. ^[1][2]

How these figures were made: inputs come from Netflix's third quarter 2026 shareholder letter and its third quarter 2026 quarterly report on SEC EDGAR, plus the dated closing price named above. Calculations use unrounded inputs and are rounded only at the end, with multiples to one decimal and per share figures and prices to the cent. ^[1][2][3]