Netflix shares fell 5 percent last week after Wells Fargo downgraded the streaming company’s stock, citing weakening user engagement.
The downgrade, detailed in a Wells Fargo report titled “Engagement Risk” from analyst Steven Cahall, found that Netflix’s user engagement has slipped in the Nielsen Gauge, with the platform’s top 100 titles showing a slight year-over-year decline, according to The Hollywood Reporter.
“Engagement trends look worrying to us. TLDR: NFLX has lacked big original series & it’s showing.”
Wells Fargo suggested the decline may be tied to Netflix’s push to compete with YouTube through investments in podcasts, gaming, and other non-traditional content formats. The firm said turning the trend around will require what it called “tougher choices ahead.”
“Options incl a content spend reboot (takes time), licensing 3P content incl live sports (e.g. from FOXA, NBCU) and/or M&A…so a messier NFLX story.”
The report also laid out where the analysts could be proven wrong: Netflix’s content spending remains at record levels and the company has repeatedly produced unexpected hits; its international slate is difficult to forecast and could exceed current estimates; and Netflix’s value proposition may still give it more pricing power and margin than the report assumes.
“Where we could be wrong: 1) Content spend is at record levels — NFLX has time & again delivered unexpected break-out hits; 2) The int’l slate is harder to forecast & could be potential upside to our hrs est; & 3) NFLX is great value so may still have pricing power/margins beyond our expectations.”
A New Lobbying Front in Washington
The downgrade landed just as Netflix moved to expand its political footprint in Washington, D.C. The company has joined Amazon and YouTube to launch a new lobbying group aimed at pushing back against lawmaker scrutiny of rising costs for streaming live sports.
The organization, called the Streaming Access and Choice Alliance (SACA), says its mission is to “promote high-quality and high-value entertainment experiences for consumers.” It will be run by TechNet, an existing tech-industry trade group, and counts Amazon, Netflix, and YouTube as founding members.
“The Streaming Access and Choice Alliance (SACA) was established to engage policymakers and highlight the many benefits that streaming services deliver to consumers.”
The group frames its members as leaders in consumer experience and positions itself as an industry voice on Capitol Hill.
“Amazon, YouTube, and Netflix — three companies at the forefront of delivering best-in-class consumer and product experiences via streaming — are founding members. SACA will provide the industry and consumers a voice in Washington, D.C., advocating for pro-competition policies that acknowledge the ever-evolving landscape and put consumers and their entertainment preferences first.”
For a readership wary of concentrated corporate influence over policymaking, the timing is notable: as Wall Street questions whether Netflix can keep delivering for its subscribers, the company is simultaneously building institutional muscle in Washington to shape the rules governing its industry.
