Netflix shares declined nearly 5% on Wednesday following a downward revision to its advertising sales forecast. The company also projected its fourth consecutive quarter of slowing revenue growth, as it struggles to deliver major hits in original content. This news led more than 20 brokerages to lower their price targets for the stock, according to LSEG data.
The streaming service has recently undergone a leadership transition, replacing two top programming executives and appointing Peter Rice as content chief. Co-CEO Ted Sarandos stated on Tuesday that these changes are intended to allow the company to focus on its core business of television and film production. Additionally, the company reduced its workforce by 6% to manage costs amid competition from platforms such as YouTube, TikTok, and a newly combined Warner Bros. Discovery and Paramount under Skydance.
Analysts noted that while Netflix's advertising and gaming divisions were expected to drive future growth, neither has yet provided a significant financial contribution. The company's stock has lost approximately 25% of its value this year. Current market data shows Netflix trading at 18.3 times its expected earnings over the next 12 months, compared to Walt Disney at 14.76 times and Comcast at 6.26 times.
Subscribers have experienced a crackdown on password sharing and price increases as the company seeks revenue beyond its original subscription model. Analysts suggest the appointment of Peter Rice could influence the types of films and series available to viewers, with a potential shift toward prestige programming and premium sports. Investors will be monitoring the company's financial results for evidence that these internal restructurings and the focus on "creative hit rates" can stabilize revenue growth.