Netflix Inc. (NASDAQ:NFLX) stock fell sharply in Wednesday's premarket trading after the streaming giant issued weaker-than-expected fourth-quarter guidance. The outlook raised concerns about slowing viewer engagement, advertising growth and rising competition.
Netflix reported third-quarter revenue of $12.874 billion, up 12% year over year but slightly below Wall Street's estimate of $12.876 billion.
Earnings of 87 cents per share beat the analyst consensus estimate of 82 cents.
Revenue growth reflected higher subscription prices, membership gains and advertising revenue.
Revenue rose 11% in the U.S. and Canada, 11% in Europe, the Middle East and Africa, 17% in Latin America and 12% in Asia-Pacific.
Netflix said subscriber retention remained strong across all regions, while customer cancellations were lower than expected.
However, weaker guidance and concerns about engagement overshadowed the earnings beat, sending shares to a new 52-week low.
Netflix's Fourth-Quarter Outlook Disappoints
Netflix expects fourth-quarter revenue of $13.442 billion and earnings of 67 cents per share. Both figures fell below Wall Street estimates of $13.517 billion and 73 cents, respectively.
The company now projects full-year revenue of $51.1 billion, compared with its previous forecast of $51 billion to $51.4 billion.
Management remains focused on improving content, enhancing its technology and increasing revenue from existing subscribers.
Netflix also plans to stream three NFL games across Thanksgiving Eve and Christmas Day as it expands its live sports offerings.
Evercore's Mahaney Says Netflix Must Fix Content
Evercore ISI Managing Director Mark Mahaney told CNBC that Netflix needs stronger programming to revive viewer engagement.
Mahaney pointed to a shortage of major hits, weaker engagement and recent leadership changes in the company's content division.
He believes Netflix can address these challenges through better shows, faster sequel releases and more compelling live events.
However, he warned that prolonged engagement weakness could eventually hurt subscriber growth and limit Netflix's ability to raise prices.
MNTN CEO Warns of Rising Streaming Competition
MNTN CEO Mark Douglas told CNBC on Tuesday that Netflix faces growing competition for premium content from Disney, HBO Max and Paramount.
Douglas said Netflix has the financial resources to regain momentum. However, it needs stronger creative execution to keep viewers engaged.
He also highlighted the challenges of Netflix's global reach. While international markets offer growth opportunities, the company must spread its content investments across different regions.
Candle Media's Mayer Calls for Fresh Hits
Candle Media co-CEO Kevin Mayer told CNBC on Tuesday that Netflix appears to have reached a ceiling in viewer engagement.
Mayer said the company needs fresh hits to attract audiences and encourage existing subscribers to spend more time on the platform.
He expects incoming content chief Peter Rice to focus on culturally relevant programming, creator-driven content and selective sports rights.
Such investments could help Netflix reduce subscriber cancellations without the high costs of acquiring full-season sports packages.
CNBC Traders Question Advertising Growth and Pricing Power
CNBC's Fast Money traders also raised concerns about Netflix's growth outlook.
Karen Finerman highlighted disappointing fourth-quarter advertising expectations. Meanwhile, Dan Nathan questioned whether Netflix still has enough pricing power to support future growth.
Tim Seymour said the stock's forward valuation of about 15 times earnings looks increasingly attractive.
However, Guy Adami said investors remain concerned about slowing growth and weaker guidance.
The traders discussed the outlook following the company's earnings report.
Overall, analysts and industry executives see Netflix as a strong business facing mounting pressure to deliver better content.
Fresh hits, stronger engagement, advertising growth and disciplined sports spending could determine whether the streaming giant can regain momentum.
NFLX Price Action: Netflix shares were down 6.61% at $64.14 during premarket trading on Wednesday. The stock is trading at a new 52-week low, according to market data.
