Netflix shares fell 3.7% to $72.52 before Friday's opening bell, adding to a decline of about 20% this year through Thursday's close. The latest selloff came after Wells Fargo Securities downgraded the streaming video company to Underweight from Equal Weight, citing concerns over user engagement. According to reports from Baron's, the firm's core concern centers on the streaming platform's content, with analysts believing Netflix's originals slate looks weaker in the second half of 2026 compared to prior periods. Wells Fargo analyst Steven Cahall issued the downgrade, cutting the rating to Underweight and lowering his price target to $57 from $80. As per Baron's, the target implies another 25% downside for the stock. The Communication Services Select Sector SPDR ETF (NYSEARCA:XLC) was up 0.26% this morning, while the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) was down 0.3%, indicating this was a stock-specific repricing rather than a sector-wide event.
Netflix's user engagement challenges have intensified significantly, with Wells Fargo reporting that viewership fell by 1.6 hours per subscriber per day in the first half of 2026. This decline puts viewership rates down roughly 8% on an adjusted basis versus the first half of 2023, according to the bank's estimates. As reported by LiveMint, Wells Fargo analysts estimate that Netflix viewership could fall 4% year-on-year in the second half of 2026, including a decline of more than 20% for its Top 100 Netflix Originals. Cahall's stated concern is softening viewer engagement at Netflix and a weaker slate of original series in the second half of the year, with subscriber churn risk rising into next year. The analyst noted that approximately 20% of viewing hours come from the Top 100 titles, where much of the zeitgeist and member value is driven, making this segment particularly critical for the platform's performance. Wells Fargo's base case projects that Netflix's top 100 originals hours will fall 21% year-over-year in the second half of 2026, with the firm citing engagement risk as the primary driver behind the downgrade.
Cahall's warning comes after Netflix surprised investors in July by announcing it would publish its flagship engagement report once a year rather than twice, fueling concerns about subscriber engagement. The analyst pointed to weakening engagement trends and a shortage of major original series, arguing that the company needs another wave of breakout hits to get its stock story back on track. As reported by LiveMint, Wells Fargo also speculates that Netflix is taking the fight to YouTube and may be at fault, citing increased investment in video podcasts, creator deals, games and other genres, with the streamer leaning more into content diversity. Cahall added another dimension to the streaming competition, noting that Disney looks like a 'more hit-driven' streamer right now. Netflix has several possible routes to reignite growth, including ploughing more money into content, licensing more live sports content, or looking to grow via mergers and acquisitions, though Cahall said these options could create a 'messier Netflix story' for investors.
For the June quarter, Netflix reported revenue of $12.56 billion, up 13% year-on-year, marginally below analysts' estimates. Net income rose to $3.40 billion, or 80 cents per share, from $3.13 billion, or 72 cents per share, in the corresponding quarter last year. According to LiveMint, Netflix narrowed its full-year 2026 revenue guidance to $51 billion-$51.4 billion, compared with its earlier forecast of $50.7 billion-$51.7 billion. The company said this week that it will report Q3 2026 numbers in the coming earnings cycle, which puts the timing of the Wells Fargo cut squarely ahead of a fresh operating update from Netflix.
The downgrade creates a stark contrast with Evercore ISI analyst Kutgun Maral, who went the opposite direction earlier this week, raising his Netflix price target to $110 and keeping an Outperform rating. Maral's survey work showed Netflix household penetration at a multi-year high in the United States and at a record level in Japan, helped by a sharp rise in live sports viewing among members. However, Wells Fargo's call goes against the broader Wall Street consensus, with 38 of the 52 analysts covering Netflix maintaining buy or strong buy ratings, according to LSEG data. The stock has fallen nearly 30% year-to-date and almost 40% in the last 12 months, putting it on track for its worst annual performance since 2023. Wells Fargo's new $57 target values Netflix stock at about 15 times expected 2027 earnings per share, compared with around 20 times as of Thursday's close, while the 12-month average price target sits around $93.88, according to Koyfin data.
