Netflix on Tuesday lowered its revenue forecast for the fourth quarter following a turbulent stretch for the streaming giant, which in the past week cut 6% of its workforce in its biggest round of layoffs since 2022 and parted ways with two of its top content executives.
Revenue rose 12% to $12.874 billion, slightly above analyst expectations, the Los Gatos-based company reported in its third-quarter earnings results. It posted net income of $3.7 billion, up 44% from a year ago, and earnings per share of $0.87. Analysts surveyed by FactSet had expected earnings per share of $0.82
For the fourth quarter, Netflix expects revenue of $13.4 billion, up 12% from a year earlier. The company said for the full year it estimates revenue will be $51.1 billion, due to lower than expected ad revenue of $2.7 billion. Netflix had previously forecasted its ad revenue to be $3 billion for the year and said it was adjusted due to slightly slower than expected roll out of some ad product capabilities.
The company’s stock price has fallen 44% from a year ago. On Tuesday, the stock closed at $68.69 a share, down about 2% ahead of the results. In after-hours trading, shares were down 5%.
The results arrive as some analysts have grown concerned about Netflix’s future growth. Last week, the company laid off about 1,000 employees and named former Disney executive Peter Rice as chief content officer, replacing longtime executive Bela Bajaria. On Monday, Netflix announced the exit of its film chief, Dan Lin.
Netflix, widely considered the winner of the streaming wars, is now under scrutiny over how it will better compete against rivals like YouTube, which has claimed a growing share of TV viewing in the U.S. In July, YouTube accounted for 14.2% of all time Americans spent watching TV, compared with Netflix’s 7.8%, according to Nielsen.
Analysts say that Netflix has struggled to find enough new hits to replace its past franchise successes that have ended like “Stranger Things” or “Squid Game.” Some popular shows also saw steep second season declines this year. The second season of fantasy series “Avatar: The Last Airbender,” which debuted in late June, generated 8.7 million views in its first four days, a 59% decline from its first season.
While Netflix has said that such drops are common, analysts point to other hit shows on rival streaming services like medical drama “The Pitt” that increased its viewership in its second season.
The company sought to boost its library by acquiring Warner Bros. Discovery but pulled out of the auction after it was no longer “financially attractive” for the streamer.
“Netflix has been in a slump ever since they’ve decided to pursue Warner Brothers … that was a huge distraction for the streamer, that whole episode,” said Tom Nunan, a former president of the United Paramount Network (UPN).
Netflix said in a letter to shareholders on Tuesday that its mission is to entertain the world while building a successful business, with the core being streaming TV, film and live events that make money through subscription and ads.
“Our strategy is simple: invest in differentiated, exclusive, professionally-produced entertainment like Netflix originals that spark conversation, bring in more members, and make us a “must-have” service,” Netflix said in its letter. “We pair these originals, which anchor our service, with a broad, complementary selection of third-party programming, a great discovery experience, and leading global distribution.”
The company did not mention games as part of the core of its service. Netflix since 2021 has bought gaming studios and invested in building its games division with mixed results.
The company said that based on its members’ response to its price increases this year, Netflix believes its engagement “remains healthy” and that it continues to deliver strong value to customers. “But we do seek to accelerate growth in view hours as well, and we’re confident we’ll do that by relentlessly focusing and executing against the aforementioned strategy,” Netflix said in its shareholder letter.
Some analysts said they think the company should continue to invest in sports content, as streaming services are now resembling more of the pay-TV bundles from the past. Netflix has said that currently live programming makes up about 5% of its content budget, but only represents 1% of its watch time, although it has brought in significant subscriber sign-ups.
Jeffrey Wlodarczak, CEO of Pivotal Research Group, said he has a hold recommendation on the stock.
“It’s going to take a while for them to turn things around,” Wlodarczak said.
Other industry observers said to not underestimate Netflix.
“The street is mistaken in not understanding all of what Netflix can bring,” said Michael J. Wolf, CEO at Activate Consulting.
Wolf said that Netflix is the default streaming service for many consumers and that the company has opportunities to grow in other markets like the Middle East and Asia, and in its ads business. The streamer also has existing franchises that have been successful, including Regency era romance series “Bridgerton,” which continues to roll out new seasons and has a library of past seasons for fans to go back and watch.
“With a new programming direction, they will quickly be able to reaccelerate that growth.” he said.
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