Big Netflix Cut Reaffirms Our Growing Concerns
Earlier this month, we downgraded Netflix ($NFLX) shares to a Three rating from Two, sharing that we would look for strength in the shares to unwind our position. So far, the shares have rebounded from that below $68 level and, barring any dramatic downturn in the market that would push the S&P 500 below its 50-day moving average near 7,707 on a sustained basis, our intent has been to start that NFLX unwinding process closer to $75.
Ahead of the company’s Q3 2026 earnings report on October 20, The Wall Street Journal reports Netflix is eliminating about 1,000 positions or about 6% of its staff. This follows comments from co-CEO Ted Sarandos that the company is not growing as quickly as targeted. When that happens, we tend to see companies cut costs where they can, and for Netflix that means laying off those in product, tech, legal and human-resources teams. Next week, Netflix will likely say something along the lines that it is making difficult choices, but it will continue to invest in high-impact areas and making focused choices.
As we’ve seen ample times in the past, a company cannot cut its way to growth, not real growth. Understanding that, we are reiterating our intended strategy with NFLX shares.
Another reason for that reiteration is data from Apptopia that showed Netflix’s U.S. churn picked up in Q3 2026. For the prior three quarters, that level of churn had been running around 8% according to its findings, but through July to September of this year, that figure crossed into double digits. Apptopia’s data also shows that Netflix’s Average Time Spent per Daily Active User in U.S. has drifted lower in recent quarters.
Those figures suggest that Netflix’s content slate isn’t winning eyeballs the way it used to. As we’ve said over the years when it comes to companies like Netflix or Disney ($DIS), content is king. Looking at the programming Netflix has announced for the current quarter, the number of potential high profile or break out hits looks thin, especially compared to the monster that was “Stranger Things.”
Rebuilding a content slate takes time, but there is also the competitive factor as Disney, Skydance ($SKYD), Apple ($AAPL), Amazon ($AMZN) and others look to do the same. Several of those competitors have much deeper pockets than Netflix and they too are leaning into live programming, including sports. And let’s not forget about Google’s ($GOOGL) YouTube, which continues to not only take market share but most likely advertising dollars as well.
Given the above, we’ll be mindful of how Netflix shares trade over the coming days, and if we see the company deliver a positive surprise next week that leads to a short squeeze, odds are we’ll use that pop in the stock to move on. As of September 30, per data from Nasdaq, 82.2 million shares were short, which equates to about 2.1 days to cover.
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At the time of publication, TheStreet Pro Portfolio was long AAPL, AMZN, GOOGL and NFLX
