Netflix (NASDAQ:NFLX) fell in September and co-CEO Ted Sarandos admitted growth is running slower than he wants. Viewership rose just 2% in the first half of 2026. For a company built on pulling people in, that is the number the stock is now trading on.
Downgrades, Emmys Misses and a YouTube Problem
The slide came from an accumulation of bad news rather than one event. On Sept. 18, Wells Fargo cut Netflix to underweight from equal weight, lowering its price target to $57 from $80 and projecting a 21% drop in hours watched for the top 100 originals in the second half. HSBC then moved to hold from buy, pointing to viewing time lost to YouTube. Netflix’s share of U.S. viewing time slipped about one percentage point to 7.8% over the past year.
The Emmys added to it. Netflix won 16 awards from 111 nominations, its lowest conversion rate in ten years, and finished behind Apple TV and HBO Max. The risk is that pushing into live sports, games, podcasts and reality shows is pulling focus from the blockbuster originals that made people open the app in the first place.
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Live Sports Cost Hours but Open the Ad Door
Sarandos put numbers on the live bet. Live programming takes about 5% of a $20 billion yearly content budget and delivers about 1% of viewing, which he acknowledged drags on the growth figure.
The payoff shows up elsewhere. Netflix now shows ads to members on every plan during live events, which puts the whole subscriber base in front of advertisers, and live audiences tend to fetch premium ad prices. Management expects ad revenue to double to about $3 billion in 2026. In other words, an hour of live sports earns its keep through signups and advertising, not through the viewing total.
Revenue Keeps Climbing While a Big Deal Got Away
Away from engagement, the financials look sturdy. Revenue for the second quarter rose 13.4%, reaching $12.6 billion, and the operating margin of 33.4% was only a little below the 34.1% from a year earlier. Management’s full-year outlook calls for growth of 13% to 14%, with content spending rising about 10%, slower than revenue.
Netflix also walked away from Warner Bros. Discovery in late February, when Paramount Skydance won with a higher offer, and collected a $2.8 billion breakup fee. Sarandos has defended the bid as a sound plan. The shares have still fallen this year, which shows how much the engagement question outweighs the cash.
What Does Wall Street Think?
Hedge fund ownership fell to 121 funds from 144 in the prior quarter. That means large institutions are trimming into the weakness. Short sellers are mostly absent, though, with just 2.28% of the float sold short, which signals little organized bearishness. At 18.69 times forward earnings, Netflix is priced for far less growth than the double-digit pace management is guiding to this year. The sellers look like owners cutting back, not traders betting on a collapse.
What October 20 Needs To Settle
The open question is whether weaker engagement is a rough patch in the content calendar or a lasting shift of attention toward YouTube. Netflix reports third-quarter results on Oct. 20. Because the company no longer reports subscriber numbers, hours watched, ad revenue and margins are where any answer would show. The strength of the original lineup is the part nobody can see yet.
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This article is originally published at Insider Monkey.
