Netflix (NFLX) built its stock on one fact. People sign up and they don't leave. That's still true. Here's the new problem. The average subscriber watches about 9% less than three years ago, by Wells Fargo's estimate. For most of Netflix's life, nobody cared much about that number. Now it's the one that moves the stock.
David Wainer explains why in the Journal's Heard on the Street column. Streaming has grown up. Keeping subscribers isn't enough anymore. Netflix's growth now leans on advertising, and ads pay by how much people watch. So viewing hours matter. And they're slipping. Netflix just cut its 2026 ad-revenue forecast to about $2.7 billion from $3 billion. It said its ad technology is running late. Wells Fargo thinks ads could make up more than a third of the company's revenue growth next year.
A good business and a falling stock
This is the odd part. By the numbers Netflix reports, the business is in great shape. Profit margins, the share of each sales dollar it keeps, are on course for a record year. Cash keeps coming in. Fewer customers cancel than at any rival. Yet the stock is worth about half what it was at last year's peak. It closed at $62.34 on Monday, Nov. 2. Investors are just grading a different test now. When Netflix stopped reporting subscriber counts last year, it told investors to watch engagement instead. That means how much time members spend watching. That number has stalled. From next year, Netflix plans to publish it only once a year, not twice.
Netflix has a few ways out, and none is free. It could run more ads. It shows about 2.4 minutes an hour, against roughly eight at Hulu and Disney+, by BMO's count. More ads could annoy the viewers it wants to keep. It could spend more on shows, which eats into margins. Or it could keep raising prices. Every increase pushes some people down to the $8.99-a-month plan with ads. That plan brings in less per member until ad sales catch up. Meanwhile YouTube draws about twice Netflix's share of U.S. TV viewing, Nielsen says. Wells Fargo's Steven Cahall thinks Netflix should be priced like Disney, at about 15 times a year's earnings. It trades near 17 times.
Our read
Investments/Risk · IN04. The lesson isn't really about Netflix. A great business can still be a falling stock when the market changes the scorecard. The stock looks cheap against its own history. Cheap against history isn't the same as cheap, if growth has changed shape. Netflix isn't held in any of our model books. Alphabet (GOOGL), YouTube's parent, is held at weight in 28 books. Nothing added.
Here's the check for your own money. It's a Cash Flow · M5 one. Netflix's problem is people paying for something they use less. Most households have the same problem in reverse. Open your card statement and list every subscription. Streaming, apps, the gym, the storage plan. Next to each one, write how many times you used it last month. Anything used less than twice is a candidate for the cheaper tier, or for canceling. For many families that's a few hundred dollars a year, found in ten minutes. You check for leaks before the rain, not during it.