Netflix vows to revive viewership trends, but investors hit 'sell' on the stock

By Bill Peters

Streaming service cites 'intense competition' and acknowledges 'some investor concern about our view-hours growth'

Netflix's stock was falling after earnings.

Wall Street grew more worried over Netflix's viewership trends on Tuesday, as investors soured on the streaming giant's sales outlook and stumbles in its advertising business.

During Netflix's (NFLX) earnings call, executives said worldwide demand was still healthy, and expressed excitement for its upcoming lineup of shows, films and sports. But shares of Netflix (NFLX) slid around 5.6% after hours.

Co-CEO Ted Sarandos said during Netflix's earnings call on Tuesday that its overall plans were unchanged, even as some analysts worry that its push into podcasts, games and live events had come at the expense of making shows and films people actually want to watch.

Sarandos said original shows and films laid at the heart of those plans. And he said its push into live events helped Netflix stand out as streaming options proliferate.

"We've oriented the market to expect something great and new to watch every week, so we have to deliver on quality and quantity always," he said.

He made the remarks roughly a week after Netflix said it would cut some 1,000 jobs, or around 6% of its staff, amid worries about waning viewership, competition with short-form video providers and pushback to recent price increases. Management on Tuesday said the job cuts would weigh on margins, a measure of profitability.

Netflix's stock is down 26.7% so far this year. Management, in its letter to shareholders on Tuesday, noted "intense competition." And it acknowledged "some investor concern about our view-hours growth." But it said members' responses to higher subscription prices this year are "consistent with prior price changes and our expectations," indicating healthy engagement.

The company said it would try to increase hours watched by expanding access through licensing and steps to bring more third-party programming to its platform, such as its partnership with TF1, a TV network in France.

Netflix said it expects fourth-quarter revenue of $13.44 billion, with earnings per share of 67 cents. That outlook was below FactSet estimates for $13.52 billion in sales and earnings per share of 73 cents.

Co-CEO Greg Peters, during Tuesday's call, said that U.S. engagement was solid, but that there was room for improvement. And he called out a number of shows and movies on the horizon that he said would draw viewers, including holiday-season NFL games, the final season of "Emily in Paris," and the David Fincher and Quentin Tarantino film "The Further Mis-Adventures of Cliff Booth," which stars Brad Pitt.

For the full year, Netflix expects $51.1 billion in revenue, a bit below analysts' expectations for $51.21 billion. That was slightly below the midpoint of an earlier company forecast, as it trims its expectations for ad sales due to a "slightly slower-than-expected rollout of some ad-product capabilities."

"With Netflix under pressure to find alternative lines of revenue beyond subscriptions, it's concerning that the company lowered its estimate for its ad business," eMarketer analyst Ross Benes said in emailed remarks. "Revamping content strategy is not enough to fix this challenge but it is a worthwhile start."

Netflix over the summer spooked some investors when it said it would publish some viewership data less frequently. However, other analysts have said the company is still big enough globally to weather dry spells in the U.S.

Netflix reported third-quarter revenue of $12.874 billion, compared with FactSet forecasts for $12.869 billion, with sales growth coming from price increases. The company earned 87 cents a share, compared with estimates for 82 cents a share.

-Bill Peters

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10-20-26 1830ET