Netflix shares fell on Wednesday as investors weighed two setbacks: the streaming company announced roughly 1,000 job cuts worldwide, more than markets had expected, while research showed its US customer churn continued to rise. Attention is shifting beyond subscriber growth to user engagement, content-spending efficiency and the durability of revenue gains.
Netflix said from its Los Gatos, California, headquarters that it would reduce its global workforce by about 6%, affecting approximately 1,000 positions. It is the company’s largest round of layoffs since June 2022, compared with market expectations for cuts affecting roughly 5% of employees.
Cuts focus on product and technology teams
The restructuring will primarily affect product, technology, legal and human resources roles. Netflix is not reducing staff across every part of the business; positions tied to sports are still expected to increase. Ross Benes, an analyst at Emarketer, said the layoffs showed that even leading streaming companies are facing slower growth and financial pressure.
Benes said Netflix now needs to place greater emphasis on revenue rather than simply pursuing subscriber growth. Against that backdrop, the company may look for lower-cost content to improve operating performance. The larger-than-expected layoffs are also prompting investors to reassess how Netflix is allocating resources among content, technology and newer business lines.
US churn has risen for seven straight quarters
Customer data has added to the concerns. Research firm Apptopia said Netflix’s US churn rate increased 16.6% year on year in the third quarter. In each of the three preceding quarters, the measure was about 8% above the corresponding period a year earlier. Apptopia said US churn has now increased for seven consecutive quarters.
Average time spent on Netflix also declined in the third quarter. More cancellations and weaker viewing engagement could affect retention and increase pressure on the company to use new content, sports programming or pricing strategies to keep subscribers. The available data does not identify the specific reasons for the churn, however, and does not by itself show how much was attributable to pricing changes, content availability or competing platforms.
Shares remain under pressure before results
Netflix shares were down more than 1% in midday trading on Wednesday at $69.58. The stock has fallen about 42% over the past 12 months. Several analysts have recently lowered their price targets, leaving the market cautious ahead of the company’s third-quarter results.
Netflix planned to release its third-quarter results late on Tuesday. The analyst consensus compiled by FactSet called for earnings per share of 82 cents and revenue of $12.87 billion, representing year-on-year growth of 39% and 12%, respectively. For the fourth quarter, the market expected earnings per share of 73 cents, up 30% year on year, and revenue of $13.52 billion, up 12%.
The estimates indicate that Netflix is still expected to deliver relatively strong earnings and revenue growth, but the share-price performance shows that investors are also examining the quality of that growth. If churn and average viewing time continue to deteriorate, the platform may need to spend more to strengthen its content offering. If it relies on layoffs to reduce costs, investors may instead focus more closely on the long-term implications for product and technology investment. Subscriber trends, engagement data and management’s comments on content and sports will be key details in the results.