Netflix shares drop on slowing engagement and revenue growth
Netflix shares fell after its latest earnings failed to cheer investors as the streaming giant faces mounting competition and reportedly plans to cut around 1,000 jobs.
Netflix stock dropped more than 5% on Tuesday after its quarterly earnings release failed to ease investor concerns about a slowdown in viewer engagement and revenue growth.
"We know there’s some investor concern about our view hours growth," the company said in a letter to investors, referring to how the company measures engagement, and added that it was "confident" it could accelerate that growth.
The California-based streaming giant has struggled to meet investor expectations for several quarters as it faces competition from other streamers, gaming and sports.
Netflix "has underperformed significantly over the last 6-12 months" and investors are concerned "about soft engagement trends, decelerating revenue growth, a slower margin expansion outlook, and most recently content executive leadership changes," John Belton, a portfolio manager at Gabelli Funds, told AFP in a statement.
In its third quarter ending in September, Netflix recorded $12.87 billion (€11.09bn) in revenue and $3.7 billion (€3.19bn) in net income, above investor expectations, according to FactSet.
But the company touted growth outside the US while acknowledging challenges stateside.
"The US is also working. It's just not growing as fast as it could or as fast as we'd like," Sarandos continued.
The company will also reportedly cut around 6% of its workforce, or 1,000 jobs, according to media reports.
Among them were seven high-level employees in charge of television deals and content, The Hollywood Reporter reported last week.
The company also recently replaced chief content officer Bela Bajaria, who oversaw popular shows including Stranger Things, Bridgerton and Squid Game, in addition to pushing the company's live entertainment strategy, according to CNBC.
Netflix appointed former Disney executive Peter Rice as its new content chief.
"Peter Rice understands talent relations, and in a competitive market, creative talent have choices of where they want to work," Sarandos said on the call on Tuesday.
Competition from other streamers has forced Netflix to work harder to attract and retain both paid and ad-supported members.
The company has increasingly dipped into live sports, with agreements to stream major events like the Olympics and World Cup, in addition to gaming and shorter-form content. The NFL and WWE are also on board to stream live events.
In the US, it reached 7.8% of streaming television viewers in July compared to YouTube's 14.2%, a record for the Google-owned site, according to media analytics firm Nielsen.
The World Cup lifted overall television viewership in July, according to Nielsen.
"It's really important to remember, roughly 95% of our spend and nearly all of our revenue is focused on that core, where we see a long runway for future growth," Sarandos said on Tuesday's call, emphasising its commitment to traditional television and film content.
"We see the benefits when we continue to roll out other products like new ad formats, which help with our growth," Peters added.
