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Last month was a tough one for Netflix (NASDAQ:NFLX) shareholders, as the stock tumbled 10.8%, according to data supplied by S&P Global Market Intelligence.
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For context, the benchmark S&P 500 edged lower, down 0.9% during the same period. However, the streaming pioneer fell far further as investors weighed Netflix's latest results, a leadership shake-up, and fears of plateauing user engagement.
Netflix stock was already under pressure, as investors feared user engagement had hit a wall -- and several takeaways from the company's Q3 report seemed to add weight to those concerns. The streaming giant grew revenue by 12% year over year to $12.9 billion, driving earnings per share (EPS) up 47% to $0.87.
However, investors were less enthusiastic about Netflix's outlook. For the fourth quarter, management is forecasting revenue of $13.4 billion, up 11.5% year over year, and EPS of $0.67, representing about 20% growth. This would mark the fourth consecutive quarter of decelerating revenue growth.
Netflix had previously said it expected its 2026 ad revenue to double from $1.5 billion to $3 billion. However, the company recently lowered its forecast, now expecting ad revenue of $2.7 billion. Management cited "delays in the rollout and partner integration of some of those new ad products."
Perhaps more concerning were some of the streamer's recent personnel actions. Late last month, Netflix announced plans to lay off roughly 1,000 employees -- or 6% of its global workforce. This marks the largest slate of layoffs since 2022. The company followed that move with a shake-up among its content leadership, replacing its chief content officer and film chief.
The moves come as Netflix is suffering from waning viewer engagement. Despite expanding into podcasts and live sports to shake things up, viewers are logging into the streaming platform fewer times per month and spending less time there when they do, according to numerous reports. In July, Netflix reported that subscribers had watched 97 billion hours of content during the first six months of 2026, up just 2% year over year. That suggests existing viewers, while growing, are watching less.
While many investors have viewed the Netflix glass as half empty, there are plenty of reasons to be optimistic. Despite a downward revision, ad revenue is expected to grow by 80% in 2026, and its ad-supported tier is poised to launch in 15 new countries next year, which should provide a notable boost to its ad business. Furthermore, revenue and profits are still poised to grow in the double digits, and the company expects free cash flow to grow 19% this year to $12 billion.
One of the biggest question marks is whether Netflix will be able to field another hit show that gets viewers talking, along the lines of Stranger Things, Squid Game, or Wednesday. I would argue that, given the company's track record, it's a matter of "when," not "if."
Despite its consistent growth, Netflix is selling for less than 19 times earnings, a multiple not seen since 2022. There's a lot of negativity priced into the stock, but its valuation offers astute investors the chance to buy the streaming pioneer at a discount.
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Danny Vena, CPA has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
Why Netflix Stock Plunged 11% in October was originally published by The Motley Fool
