Netflix shares decline as weak earnings and gloomy advertising outlook deepen investor concerns

Reuters, October 21 - In pre-market trading on Wednesday, Netflix (NFLX.O) shares fell 6% after the company lowered its full-year advertising revenue forecast (link) and issued a weaker earnings outlook for the fourth quarter, fueling concerns regarding a slowdown in its viewer numbers and revenue growth.

The stock has already dropped more than 26% this year, and if the current downward trend continues, the streaming giant’s market capitalization will shrink by approximately $17 billion.

The share performance highlights the increasingly tough challenges faced by Netflix, from losing out in a bidding war at Warner Bros. Discovery earlier this year, to defending its paid subscription model amid competition from free digital rivals, and contending in an increasingly consolidated streaming market.

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

“Netflix remains a leader in the streaming space, but the competition for users’ attention is much broader than just streaming itself, especially with the rise of short videos,” said Ben Barringer, Head of Technology Research at Quilter Cheviot.

Barringer pointed out that the company needs to ensure its content is engaging enough to keep audiences involved, not just retaining them as subscribers.

This month, Netflix has also cut about 6% of its workforce (link) and reorganized its leadership team (link), marking a restructuring phase.

Co-CEO Ted Sarandos said Tuesday that the company plans to focus on its core business of producing quality TV series and films to make Netflix an indispensable service, and the recent executive moves are a step toward that goal.

According to data compiled by London Stock Exchange Group (LSEG), at least 14 brokerages lowered their target price for Netflix shares after the earnings report.

Netflix’s price-to-earnings ratio is currently close to 18.28 times expected earnings over the next 12 months, compared to Walt Disney’s DIS.N ratio of 14.76 and Comcast’s CMCSA.O ratio of 6.26, underscoring investors’ premium valuation of the streaming giant.

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