Netflix faces questions on user engagement ahead of third-quarter report

Netflix Confronts User Engagement Decline and Stagnating Growth in Q3 Report

Netflix’s Q3 Performance and Strategic Responses

Oct 19 (Reuters) - Netflix investors are expecting details on how the streaming giant plans to sustain growth when it reports third-quarter results on Tuesday, as competition intensifies and user engagement shows signs of fatigue.

Executive Insights and Growth Initiatives

Ted Sarandos, the co-CEO of Netflix, recently admitted the company "is not growing as fast as I want us to", and suggested live programming could be an opportunity to accelerate growth.

Shifting Entertainment Landscape

The streamer is contending with a fundamental shift in entertainment as lower-cost, creator-led videos chip away at premium scripted content. YouTube, the dominant streaming platform in the US, has nearly double the viewing time of Netflix and continues to gain market share, according to Nielsen.

Key Q3 Financial and Operational Highlights

Here are more details:

Revenue and Workforce Adjustments

• Netflix is expected to post its slowest third-quarter revenue growth in three years, with sales forecast to increase 11.8% to $12.87 billion, according to data compiled by LSEG.

• It cut about 6% of its workforce in a move that analyst Ross Benes of Emarketer said reflected the streaming industry's shift to profitability.

Leadership Changes

• Netflix also saw a change in its content leadership, with longtime head of content Bela Bajaria leaving the company and former Disney executive Peter Rice taking over.

User Engagement and Churn

• Its US user churn rose 16.6% year-over-year in the third quarter, roughly double the pace of the prior three quarters, while downloads in the US and Canada fell 20%, according to market research firm Apptopia.

• Jefferies estimates average monthly viewing time per Netflix member fell to 49 hours in the first half of this year from 66 hours in the first half of 2023.

Content Slate and Major Events Impact

• The 2026 FIFA World Cup and a weaker content slate than last year weighed on Netflix's engagement, analysts said.

• The company recently acquired broadcast rights to air the 2030 FIFA World Cup in Spain and Andorra.

Revenue Diversification Through Advertising

• Netflix is betting on advertising to diversify revenue, with Jefferies forecasting ad revenue to reach $7.5 billion in 2029.

(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Edmund Lee and Devika Syamnath)