Netflix co-CEO Ted Sarandos Andrew Leyden/Getty Images Netflix shares fell nearly 5 percent on Friday after Wells Fargo downgraded its stock and price target, citing concerns over user engagement.
The report, by Wells Fargo analyst Steven Cahall, was titled “Engagement Risk,” and noted that the trends for viewer engagement were concerning, with the streamer falling in the Nielsen Gauge and the top 100 titles also seeing a slight year-over-year decline.
“Engagement trends look worrying to us,” the report states. “TLDR: NFLX has lacked big original series & it’s showing.”
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As for what’s causing the drop in engagement, Wells Fargo speculates that Netflix is taking the fight to YouTube and may be at fault, citing increased investment in video podcasts, creator deals, games and other genres, with the streamer leaning more into content diversity.
The company can turn things around, but the bank sees “tougher choices ahead.”
“Options incl a content spend reboot (takes time), licensing 3P content incl live sports (e.g. from FOXA, NBCU) and/or M&A…so a messier NFLX story,” Cahall writes. “Where we could be wrong: 1) Content spend is at record levels — NFLX has time & again delivered unexpected break-out hits; 2) The int’l slate is harder to forecast & could be potential upside to our hrs est; & 3) NFLX is great value so may still have pricing power/margins beyond our expectations.”
In other words, a recalibration of where it spends its content, cutting sports deals with third parties… or even another deal after the Warner Bros. deal fell through.
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