Netflix stock sinks after announcing Q3 earnings, Q4 revenue forecast falls short of estimates

Netflix ( NFLX ) stock fell 5% in after-hours trading on Tuesday as the streaming giant's Q4 revenue outlook came in below Wall Street estimates, signaling slower growth.

The company posted revenue of $12.87 billion in its fiscal third quarter, in line with analyst estimates. Earnings per share came in at $0.87, topping estimates of $0.82.

Fourth quarter outlook for the company's top line, though, came in at $13.44 billion, short of the consensus analyst expectation of $13.51 billion.

Wall Street has been laser-focused on the engagement metric , which accounts for how much time viewers spend watching and churn.

When it comes to the US, "our engagement is solid, and it will allow us to continue to grow as we have for the last several years," Greg Peters, co-CEO of Netflix, said during the earnings call.

"But we know that we can do better. And that's better for our upside. It's our goal to go from very good to great," he added.

Wall Street analysts were looking for signs on whether slowing engagement would bleed into the revenue growth numbers.

"That is exactly what we are seeing with the 4Q growth outlook," Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance after the results were released.

"This kind of speaks to a slowing growth algorithm, which kind of spells trouble for the company without a doubt," she added.

The results follow the streaming giant's job-cutting plan and a leadership shake-up announced last week amid slowing viewer engagement.

Last week, former Disney executive Peter Rice was named Netflix's next chief content officer. Rice replaces Bela Bajaria, who worked at the streamer for nearly a decade and served as CCO since 2023.

Also last week, Netflix said it would cut 6% of its workforce, or about 1,000 employees, marking the company's largest reduction of employees since 2022.

The move comes as the company seeks to reinvigorate viewership growth and strengthen its content amid growing competition and short-form viewing habits.

Audiences have increasingly moved away from traditional television sets toward mobile devices, noted Piper Sandler director and senior research analyst Tom Champion in a recent interview.

"Where a lot of the [video] growth has come from has been short form, has been content especially built for mobile," Champion told Yahoo Finance. "That's given rise to TikTok and Instagram Reels, and increasingly, YouTube seems like the superpower in terms of video content."

Earlier this year, Paramount outbid Netflix for Warner Bros. Discovery and won shareholder approval for its revised $111 billion deal, including debt, in April.