Netflix Sinks 7% as Soft Q4 Outlook Sparks Wave of Price Target Cuts

Netflix shares dropped 7% to $64.07 in morning trading after the company projected fourth-quarter revenue of $13.44 billion, a figure that fell short of Wall Street expectations. The negative reaction to the outlook overshadowed the company's third-quarter earnings beat, which saw revenue in line with analyst estimates and earnings per share exceeding them.

Analysts responded to the report with a wave of price target cuts, though most maintained positive ratings on the stock. Needham went further than its peers, downgrading Netflix from Buy to Hold. Barclays analyst Kannan Venkateshwar noted that limited growth visibility for next year means Netflix stock may not recover through this year.

Co-CEO Greg Peters acknowledged on the earnings call that the business is currently a bit behind its aggressive target for the year. He specifically identified U.S. engagement as a weak spot, stating the company is not growing as fast as it would like. Despite this, Peters reported that third-quarter churn improved year-on-year both globally and in the United States, a metric he described as better than forecast.

Management also trimmed its advertising revenue outlook for the year. Peters stated that general demand remains strong and the breadth of advertisers continues to expand, pointing to new programmatic partnerships in Latin America and Europe as efforts to convert that demand into revenue. However, the lagging ad business contributes to the skepticism surrounding the company's near-term growth trajectory.

Recent operational moves aim to address these challenges. Netflix announced job cuts last week and named Peter Rice as chief content officer, an executive with experience across TV networks, movie studios, and live sports. Morgan Stanley described these moves as showing decisive action. Co-CEO Ted Sarandos stated on the call that better execution is needed in the U.S., while CFO Spence Neumann said the company wants to grow view hours faster and is working on it.

Investors are now watching whether these leadership changes and cost measures can revive engagement metrics. The next test for the company will be determining if the new content strategy can close the gap in U.S. growth while the advertising rollout catches up to plan.