Updated version 2 – Netflix shares fall as weak outlook heightens market concerns over audience numbers and revenue growth

Stock price will be updated at opening

Kanishka Ajmera/Siddarth S

Reuters, October 21 - On Wednesday, Netflix NFLX.O shares fell about 5% after the company's lackluster earnings and outlook for ads intensified investor concerns about slowing viewer numbers and revenue growth amid fierce competition in the streaming industry.

The stock has dropped by more than 26% so far this year; if the current decline continues, the streaming giant's market capitalization will evaporate by about $13.4 billion.

The stock performance highlights the increasingly tough challenges facing Netflix—from losing out earlier this year in the bidding war with Warner Bros. Discovery, to defending its paid subscription model against free digital competitors, and competing in the increasingly consolidated streaming market.

As audiences turn to free user-generated content platforms like YouTube and TikTok, Netflix is also facing a shift in user preference from premium content to short videos.

Netflix, which will stop reporting subscriber numbers starting from 2025, said its third-quarter revenue (link) rose 11.8% to $12.87 billion, meeting Wall Street expectations but marking the lowest growth rate in nearly three years.

The company also lowered its forecast for 2026 ad revenue from the previous estimate of about $3 billion to about $2.7 billion.

"Netflix's growth momentum has clearly slowed," analysts at Evercore ISI said in a report.

Evercore attributed the weakness to a maturing market; ongoing competition from platforms like YouTube, Amazon, and Disney; potential challenges from short video content on TikTok and YouTube; and missteps in content operations.

On the earnings call, Co-CEO Ted Sarandos admitted the company "could have done better."

According to London Stock Exchange Group (LSEG) data, more than 20 brokerages have lowered their price targets for the stock after the earnings release.

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Management changes signal moves to address growth concerns

Sarandos said on Tuesday the company plans to focus on its core business of producing premium TV series and films, aiming to make Netflix an indispensable service for users, and that recent executive adjustments are steps towards this goal.

The company recently replaced Chief Creative Officer Bajaria (Bela Bajaria) (link), announced that film business head Lin (Dan Lin) will soon leave, and cut 6% of its workforce (link).

Analysts expect most of the challenges—including slowing user engagement and revenue growth—can be addressed.

Bank of America Global Research analysts said the leadership overhaul and layoffs "indicate that management is committed to improving content output and the hit rate of creative works."

Netflix's current P/E ratio is about 18.28 times expected earnings for the next 12 months, while Walt Disney's is 14.76 times DIS.N, and Comcast's is 6.26 times CMCSA.O.

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