Netflix's downward revision of its advertising revenue forecast is fueling concerns that its "growth engine" is losing momentum. This puts at risk the competitive advantage that once made Netflix a model for the entire media industry, UNN reports, citing Reuters.
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The company's shares fell nearly 5% on Wednesday afternoon. This came after Netflix forecast slower revenue growth for the fourth consecutive quarter. One of Hollywood's biggest investors in original content is currently struggling to create truly major hits.
Netflix plans major staff cuts amid competition for viewers14.10.26, 21:38
"Netflix is increasingly being held to standards that match its own exceptionally high benchmarks. This raises the question: has the company lost the focus and flexibility that once set it apart from its competitors?" PP Foresight analyst Paolo Pescatore said in a note to clients. Since the beginning of the year, the company's shares have lost about a quarter of their value. Netflix's unsuccessful attempt to acquire Warner Bros. Discovery only intensified concerns that the company has almost no avenues left for growth other than raising prices and cracking down on password sharing.
Netflix's advertising business, which was long viewed as a key source of future growth, is developing more slowly than expected. At the same time, the company's attempts to establish itself in the gaming industry — including through deals to add games from the Grand Theft Auto series — have so far failed to produce tangible results.
Meanwhile, YouTube and TikTok are competing for viewers' attention by offering a constant stream of relatively inexpensive user-generated content. In addition, competition is expected to intensify further after Warner Bros. Discovery and Paramount merge under Skydance's leadership.
In response to these challenges, Netflix cut 6% of its workforce and replaced two top executives responsible for content policy.
Co-CEO Ted Sarandos said on Tuesday that these steps will allow Netflix to focus on its core business — creating series and films — to make the service indispensable to consumers.
Some analysts believe that the new head of content, Peter Rice, will help improve Netflix's selection of films and series. He is expected to place greater emphasis on high-end projects ("prestige content") and draw on his connections with leading creative talent.
"His industry connections could prove useful in attracting and retaining prominent filmmakers — especially after creators such as the Duffer brothers, Shawn Levy and Noah Baumbach left the company," said Citizens analyst Matthew Condon. "Rice's extensive experience managing live sports broadcasts could help implement a more ambitious approach to producing high-end sports content, further enhancing the value proposition of Netflix."
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According to LSEG data, more than 20 brokerage firms revised their share-price targets downward after the results were released.
If the current downward trend continues, the streaming giant could lose about $13 billion in market value.
BofA Global Research analysts said that the management change and staff cuts are a "signal that management is focused on improving content quality and increasing the share of successful, popular projects."
Netflix shares are currently trading at approximately 18.3 times expected earnings for the next 12 months. For comparison, the figure is 14.76 for Walt Disney (DIS.N) and 6.26 for Comcast (CMCSA.O).