Wells Fargo downgraded Netflix, Inc. (NASDAQ:NFLX) to Underweight from Equal Weight on September 18 and cut its price target to $57 from $80, about 24% below where the stock closed the day before. The downgrade extended a slide that was already three sessions old, and the stock is now down more than 20% for the year, on course for its worst year since 2022.
Analyst Steven Cahall’s case is simple. People are watching less Netflix than they used to, and the shows coming in the second half of the year are unlikely to change that. “Engagement trends look worrying to us,” he wrote.
Netflix is Still Adding Households and New Ways to Make Money:
The bull case starts with reach. Evercore ISI raised its own price target to $110 earlier in the same week and kept an Outperform rating, after survey work showed Netflix household penetration at a multi-year high in the United States and a record in Japan, helped by a jump in live sports viewing among members. A bear reads the same survey differently. Near-record penetration means growth from here has to come from price or from engagement, and Wells Fargo says one of those is already going the wrong way.
Netflix has also built two revenue lines that did not exist a few years ago: an ad-supported tier that keeps price-sensitive members, and live events that give advertisers the kind of appointment viewing on-demand streaming rarely offers. Both lift revenue per member rather than member count, which is exactly the lever Cahall says Netflix cannot keep pulling if people are watching less.
The wider Street has not followed Wells Fargo. Most analysts still rate the stock a Buy and treat the engagement dip as a content problem rather than a broken business.
Engagement is Falling Just as Growth Slows:
Cahall’s case rests on measured viewing. By his estimate, members watched an average of 1.6 hours a day in the first half of 2026, about 8% less than in the same period of 2023 after adjusting for the extra households the password-sharing crackdown brought in.
He expects hours spent on Netflix’s biggest original titles to fall a further 21% in the second half of the year on a thinner slate, and he sees churn rising into next year if Netflix keeps raising prices into a weaker lineup.
Engagement matters because it leads revenue. Falling viewing shows up first in churn, and only later in sales, once price increases stop masking it. Revenue growth has already slowed every quarter this year, from 17.6% at the end of last year to a guided 11.7% for the current quarter. Part of that is Netflix lapping last year’s price rises and the sharing crackdown, which is why Cahall leans on hours watched rather than the revenue line. He also expects weaker content to cap margin gains.
There is also a contradiction in how Netflix is responding. It has started putting some content on YouTube and other platforms at the same time as it argues that exclusive originals are what keep members from cancelling. Cahall warns that recasting Netflix as a broader content hub risks losing the talked-about originals that made subscribers stay.
Conclusion:
Wells Fargo’s downgrade turns a soft worry into a hard forecast: falling viewing will show up in churn before it shows up in revenue. However, household reach is still rising, and advertising and live events are adding revenue the old model never had. Netflix no longer reports subscriber numbers or churn, so the revenue guide is the only place the answer can show up. The test comes on October 20. If Netflix guides fourth-quarter growth at or above the 11.7% it set for the third quarter and holds its margin outlook, the downgrade will look early. If it guides below that and talks about spending more on content, Cahall will have been right.
Market Sentiment:
Netflix, Inc. was held by 121 hedge funds with a combined stake value of about $10 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 144 hedge fund holders with a cumulative investment value of around $11.2 billion in the previous quarter.
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This article is originally published at Insider Monkey.
