Netflix’s Stock Tumbles Following Downgrade
Last week, Netflix saw its shares drop by 5% after Wells Fargo decided to downgrade its stock, citing some concerning trends in user engagement.
An analyst at Wells Fargo, Steven Cahall, authored a report labeled “Engagement Risk.” In it, he pointed out that Netflix’s viewer engagement is lagging according to the Nielsen Gauge, with the top 100 titles experiencing a slight year-over-year decline.
“Engagement trends look worrying to us,” the report asserted, as noted by The Hollywood Reporter. “TLDR: NFLX has lacked big original series & it’s showing.”
Wells Fargo posited that the drop in engagement might relate to Netflix’s efforts to compete with YouTube by branching out into podcasts, gaming, and other diverse content. To reverse this trend, the report indicated that Netflix would need to make some “tougher choices ahead.”
“Options include a content spend reboot (which takes time), licensing third-party content like live sports from companies such as FOXA and NBCU, and/or mergers and acquisitions… leading to a more complicated narrative for NFLX,” the report elaborated.
“Where we could be wrong: 1) Content spending is at record levels — NFLX has repeatedly delivered unexpected break-out hits; 2) The international slate is harder to predict and could present potential upside to our hours estimate; and 3) NFLX may still have pricing power/margins beyond our expectations,” it continued.
The report follows Netflix’s recent collaboration with Amazon and YouTube to create a lobbying group based in D.C. aimed at addressing the scrutiny from lawmakers regarding the increasing costs of streaming live sports.
This coalition, called the Streaming Access and Choice Alliance (SACA), intends to “promote high-quality and high-value entertainment experiences for consumers.” The group consists of Amazon, Netflix, and YouTube, and will be managed by the tech industry trade group TechNet.
“The Streaming Access and Choice Alliance (SACA) was established to engage policymakers and highlight the many benefits that streaming services provide to consumers,” states the group’s website.
“Amazon, YouTube, and Netflix — three companies leading the charge in delivering top-notch consumer and product experiences via streaming — are founding members,” it continues. “SACA will provide the industry and consumers with a voice in Washington, D.C., advocating for pro-competition policies that recognize the continually changing landscape and prioritize consumer entertainment choices.”
