Investors weigh ad growth and valuation risks with stocks down 8% from June record highs

Netflix (NFLX) will report its third-quarter results after the bell on Tuesday, as investors look for signs of momentum in its advertising business and live programming after a volatile period for the stock.

Shares have climbed about 40% since the start of the year, but have underperformed the broader market and their tech peers in recent months, amid questions about engagement growth, valuation and new forms of competition emerging from AI-powered content platforms.

Here’s what Wall Street expects for the quarter, according to Bloomberg consensus estimates:

Netflix no longer reports detailed membership growth metrics.

Learn more: Live coverage of corporate earnings

Analysts expect the results to be fueled by a stable content offering and strong performance from its live events business. That includes the Canelo vs. Crawford fight, which attracted more than 41 million viewers worldwide and was the most-watched men’s championship boxing match of the century, according to the company.

The animated hit “KPop Demon Hunters” also became Netflix’s most-watched film of all time, with 325 million views, highlighting the streamer’s ability to generate massive hits from relatively unknown intellectual property.

Beyond the major results, investors will focus on Netflix’s advertising momentum, a business expected to be the dominant growth engine through 2026.

Netflix recently expanded its advertising reach with a new DSP integration from Amazon (AMZN), giving marketers more ways to purchase inventory on the platform.

Doug Anmuth, an analyst at JPMorgan, said the move should “support better advertiser integration, flexible buying and measurement” while bolstering ad spending in 11 markets starting in the current quarter.

According to Anmuth, Netflix’s ad revenue is on track to more than double from $1.4 billion in 2024 to $2.9 billion in 2025, and increase another 45% to $4.2 billion by 2026.

Earlier this month, Netflix announced a new video podcast partnership with Spotify (SPOT), bringing select shows from Spotify Studios and The Ringer to Netflix in early 2026, including “The Bill Simmons Podcast,” “The Rewatchables” and “Serial Killers,” among others.

Still, some on Wall Street warn that the stock’s high valuation leaves little room for error.

Netflix trades at around 45 times forward earnings, representing a hefty premium to both the broader market and its tech peers. Analysts at JPMorgan and Citi warned that much of the optimism about the advertising industry’s growth and engagement may already be reflected in the stock price.

To add to the noise, reports surfaced last month that Paramount Skydance (PSKY) was considering a bid for Warner Bros. Discovery (WBD) in a move that could reshape the streaming landscape.

Analysts at JPMorgan and Bank of America consider Netflix unlikely to make a play for Warner Bros. and that a Paramount-Warner Bros. association. would not pose an immediate threat. JPMorgan noted that Netflix is ​​”certainly not an acquiring company,” while others, including Bloomberg Intelligence’s Geetha Ranganathan, have described the streamer as more of a builder than a buyer.

Ben Swinburne, an analyst at Morgan Stanley, also flagged the long-term risks of generative AI, writing that while the technology could eventually reshape how video is created and distributed, it does not pose a near-term threat.

“Native AI platforms could represent the next model for content distribution,” he said in a note to clients published October 16. “And it’s rare for market leaders to maintain that leadership from one cycle to the next.”

Meanwhile, a recent controversy has added another level of scrutiny, with Elon Musk urging users to cancel their Netflix subscriptions, accusing the streamer of promoting “woke” content. Netflix stock fell 5% following Musk’s most pointed barbs, which have remained quiet in recent weeks.

Allied Channel is a senior reporter at Yahoo Finance. Follow her on @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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