Netflix Is Making Big Changes, But Can It Fix What's Really Hurting Growth?

Key Points

• Netflix shares fell about 6% after Q3 earnings despite beating EPS expectations, following layoffs that cut roughly 1,000 jobs, or 6% of staff.
• Revenue growth slowed to 11.8% year over year, and weaker Q4 revenue guidance along with a lowered 2026 ad revenue outlook raised investor concerns.
• Analysts at UBS, Piper Sandler, and Rosenblatt lowered their price targets on Netflix, though institutional buying has remained strong over the past year.

One week after Netflix NASDAQ: NFLX began cutting approximately 1,000 jobs in the company’s biggest round of layoffs since 2022, the subscription-based streaming platform reported Q3 earnings on Tuesday, Oct. 20.

The layoffs, which affected about 6% of Netflix’s workforce, occurred at a time when the company was struggling with slowing growth. Despite a strong showing in its quarterly report, shares sold off in after-hours trading, sinking around 6% and bringing the stock’s year-to-date loss to more than 30%.

As the company’s troubles mount, shares of NFLX are now down over 40% over the past year, with confidence in Netflix’s ability to climb back to its June 2025 all-time high of $134.12 waning.

Following Layoffs, Netflix Tries to Win Back Investors’ Confidence

Last week’s layoffs spanned the organizational chart at Netflix. The company’s head of film, Dan Lin, was let go, as was Bela Bajaria, a 10-year veteran and chief of content.

But aside from downsizing, Netflix also onboarded new talent, including former Disney NYSE: DIS and Fox NASDAQ: FOX executive Peter Rice.

Netflix co-CEOs Ted Sarandos and Greg Peters said that the moves were intended to improve content execution, particularly in the United States, rather than fundamentally change the company's strategy.

The company reported Q3 earnings per share (EPS) of 87 cents, which beat the analyst consensus of 82 cents. Quarterly revenue of $12.87 billion was in line with expectations.

Engagement and retention—driven in part by Netflix’s expansion into gaming and live events—remain healthy, with global and U.S. churn improving year over year (YOY) and beating forecasts. Recent price increases produced member responses in line with expectations. Importantly, management reaffirmed its full-year guidance.

In his earnings call comments, Sarandos highlighted live events, including KPop performances, NFL and MLB games, as well as boxing matches. “They drive new membership, they add fuel to our ad revenues, they please our existing members, and they just generally enhance the value of Netflix,” he said.

Meanwhile, Peters highlighted international growth, highlighting how “view hours in Q3 in India grew 24% on an absolute basis…[which] drove membership and nearly 20% year-over-year revenue growth.”

Netflix's Slowing Growth and Advertising Outlook Raise Concerns

While revenue growth from the company’s India business was strong, Netflix's overall revenue growth has slowed considerably. Q3’s $12.87 billion was good for 11.8% growth YOY, which is down from 13.4% in Q2 and roughly 16% to 18% in the preceding four quarters.

Despite beating Q3 earnings expectations, Netflix's outlook raised concerns. The company issued Q4 revenue guidance of $13.44 billion, which came in below the consensus range of $13.51 billion to $13.52 billion. Netflix also lowered its full-year 2026 ad revenue outlook to roughly $2.7 billion.

Netflix’s advertising business, which has grown more than 80% in 2026, is also running behind its aggressive target. Product rollouts and partner integrations have been delayed. The company also expects headcount reductions to reduce its Q4 operating margin by approximately 120 basis points, but management declined to quantify the financial impact for 2027.

The strong EPS figure wasn’t enough to uniformly quell concerns across Wall Street. Despite maintaining its Buy rating, UBS Group lowered its price target on the stock from $115 to $100, as NFLX traded as low as $64.10 during Wednesday’s intraday session.

UBS wasn’t alone in exhibiting reservations about Netflix. Piper Sandler reissued an Overweight rating but also issued a price target of $78, down from $85. Meanwhile, Rosenblatt Securities gave the stock a $71 price target along with a Neutral rating.

Institutional Buying Remains Strong Despite Netflix's Challenges

As management continues to pursue additional growth avenues via theatrical releases, live events, third-party content partnerships, and a revamped content team, they have yet to provide investors with evidence that those initiatives can improve viewing engagement and produce more breakout hits.

Netflix is experiencing stagnant viewing-hour growth, particularly in the United States, as other streaming services compete for consumers’ attention. During the earnings call, Sarandos acknowledged that the company needs better execution and stronger U.S. programming.

For now, the stock carries a Moderate Buy rating and an average price target that implies more than 40% upside from current levels.

Institutional buying has been strong, with nearly $233 billion in reported buying activity compared with approximately $9.5 billion in selling activity over the past year.

At the same time, short interest remains relatively low at 2.12% of the float as of Oct. 15, despite increasing 4.64% from the previous reporting period.