Netflix Q2 Earnings Preview: Test Amid Sluggish Share Price, User Engagement and Advertising Business Become Key

TradingKey - Streaming giant Netflix ( NFLX) will report its second-quarter 2026 financial results after the U.S. market close on Thursday. Following a sustained correction in its stock price over the past year, this earnings report is not only critical to its quarterly performance but is also seen by the market as a key test of whether Netflix's growth thesis remains intact.

Currently, Wall Street generally expects Netflix's second-quarter revenue to be approximately $12.58 billion, up 13.5% year-over-year, with earnings per share expected at $0.79. Since the company no longer discloses quarterly net subscriber additions, investor focus has gradually shifted from past subscriber growth to user engagement, the progress of its advertising business, and management's outlook on growth prospects for the second half of the year.

User Engagement Becomes Market’s Most Concerned Metric

For Netflix, the core variable driving subscription and advertising revenue is no longer the number of net new members, but how long users are willing to stay on the platform and how much content they consume.

In recent quarters, the market has increasingly focused on whether Netflix's overall watch time is slowing. As streaming competition continues to escalate, user attention is being diverted by more platforms, with online entertainment products including YouTube, TikTok, Twitch, podcast platforms, and Roblox all competing for users' limited screen time.

At the same time, data from some third-party firms show that Netflix's share of U.S. TV viewing time has pulled back so far this year, while YouTube has continued to increase its market share, further exacerbating market concerns over Netflix's user stickiness.

Of greater concern to investors is that recent media reports suggest Netflix remains cautious internally about user engagement for certain content. Viewership data for follow-up seasons of some hit shows has declined significantly compared to their debut seasons, leading the market to debate whether it is becoming increasingly difficult for Netflix to replicate the viewership draw of past blockbuster hits like "Stranger Things" and "Squid Game."

Hanna Howard, portfolio manager at Gabelli Funds, said: "The key is to understand what steps they will take to boost future user engagement." She added that compared with solid quarterly results, a strong growth outlook is more likely to boost the stock price.

Advertising Business Enters Payoff Stage, Growth Quality Faces Test

Compared to its subscription business, the advertising business is undoubtedly one of Netflix's largest growth engines for the coming years.

The company previously projected that its 2026 advertising revenue is expected to double from last year, reaching approximately $3 billion. Although this currently accounts for only about 6% of overall revenue, management has always viewed advertising as a vital source of long-term profit growth in the future.

However, growth in advertising revenue depends not only on the size of the advertiser base, but more on the platform's ability to provide sufficient ad impressions, with ad inventory ultimately determined by user watch time.

In other words, the growth of the advertising business follows a very clear logic: the longer users watch, the more sellable ad inventory is generated, and the greater the potential for advertising revenue growth.

Consequently, the market has noticed that Netflix has begun adjusting its content strategy in recent months. The company has partnered with several top digital creators, while introducing a large volume of content originally published primarily on YouTube, and collaborating with multiple media organizations to launch lower-cost, higher-frequency short-form video programming.

Many industry insiders interpret this shift as Netflix actively expanding its ad inventory rather than simply diversifying its content offerings. Compared to high-cost original series, this type of lightweight content can continuously drive watch time at lower production costs, thereby enhancing ad monetization capabilities.

To date, Netflix has stated that global monthly active viewers for its ad-supported tier have surpassed 250 million, continuing its upward trajectory. However, whether this figure can truly translate into ad revenue and higher ad rates remains to be further validated by this earnings report.

Content Investment Continues to Increase, Growth Pressure Simultaneously Rises

Although its advertising business is expanding, Netflix still faces rising content costs.

The company previously projected that its content amortization expenses in 2026 would increase by approximately 10% year-over-year, with the growth mainly concentrated in the first half of the year. Amid rising content costs, if hit series struggle to consistently generate high viewing hours, the company's ability to raise subscription prices and expand its advertising business in the future could be impacted.

Meanwhile, the content lineup for the second half of the year has also become a focal point of market discussion.

Last year, the concentrated release of popular IPs such as 'Stranger Things', 'Squid Game', and 'Wednesday' contributed a massive amount of viewing hours to the platform. While the second half of this year will still see the rolling release of content like the fifth season of 'Outer Banks', the second season of 'The Gentlemen', 'Enola Holmes 3', and more NFL games, the market generally believes it will be difficult to produce a mega-hit that can replicate the impact of 'Stranger Things'.

Therefore, investors hope to learn from this earnings report whether the company can still rely on original content to maintain user stickiness and continue to drive growth in viewing hours.

Wall Street Remains Broadly Bullish After Sharp Stock Price Correction

Over the past year, Netflix has become one of the relative laggards among the mega-cap tech stocks in the S&P 500.

Since its all-time high, the company's stock price has suffered a cumulative pullback of over 40%, with its year-to-date decline also approaching 20%. Market concerns are primarily centered on slowing growth, intensifying competition, and uncertainty surrounding future user engagement.

However, most Wall Street firms still maintain a positive outlook.

"I think the earnings results will show that the business remains robust, the advertising business continues to grow, and consumers continue to accept price increases," said Van Tienhoven of Riverpark Capital. "For hundreds of millions of users, it remains an essential service that they are willing to pay for. The previous sell-off was somewhat of an overreaction. It remains the highest-quality media asset globally, with few rivals in the streaming space. Despite maintaining double-digit growth, its stock is trading at a discount. Now seems like an excellent buying opportunity."

Morgan Stanley continues to maintain an "Overweight" rating on Netflix. Although it lowered its target price from $115 to $90, it believes that market concerns over declining user engagement are somewhat exaggerated and expects that live content and sports events will improve platform activity in the second half of the year.

Guggenheim also maintained its "Buy" rating. The firm believes that the overall content lineup in the second half of this year may be weaker than in the same period last year, so average viewing hours will still face some pressure. However, advertising expansion, international market growth, and the sports rights strategy are still expected to provide new growth drivers for Netflix.