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Netflix Stock Drop Attributable to Engagement Reporting Shift, Soft US, Canada Revenue, BofA Says

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Netflix Stock Drop Attributable to Engagement Reporting Shift, Soft US, Canada Revenue, BofA Says

Netflix's (NFLX) move to annual engagement reporting and its soft US and Canada revenue in the second quarter are apparently weighing on the streaming giant's share price, BofA Securities said in a note on Friday.

Netflix said Thursday that it will shift the "What We Watched" engagement report to an annual cadence from twice-a-year frequency, starting in 2027 to keep the market focused on financial metrics.

The company reported second-quarter US and Canada revenue of $5.43 billion, up 10% year over year, the slowest growth rate for the region since the first quarter of 2025.

Shares of Netflix tumbled 7.4% in Friday trading, and are down 27% so far this year.

Netflix's decision to publish its engagement report annually, combined with softer-than-expected UCAN revenue, "appears to be weighing on shares despite continued subscriber growth," BofA analysts, including Jessica Ehrlich, said.

Netflix reported second-quarter revenue that fell short of Wall Street's estimates late Thursday, while earnings per share climbed just above expectations.

"Heading into (second-quarter) earnings, Netflix was a battleground stock, pressured by concerns related to slowing engagement, decelerating revenue growth, and the possibility of transformative (merger and acquisition)," Ehrlich said. "While results were largely in line, they were not strong enough to fundamentally alter the debate."

The first-half engagement report showed that members watched more than 97 billion hours of content on Netflix, up 2% year over year. UCAN viewing hours fell year on year, though other regions logged gains, Oppenheimer said in a note.

"While (management) argues 'not all viewing hours are equal,' investors have limited data to forecast subscription drivers and therefore not enough to disprove bear thesis on structural engagement trends," Oppenheimer analysts wrote.

BofA said Netflix's share price -- down nearly 50% from its peak -- likely reflects investor concerns over the streamer's appetite for an acquisition, including a premium studio asset. Netflix in February abandoned its plan to acquire Warner Bros. Discovery (WBD), which is now being purchased by Paramount Skydance (PSKY).

"Should management pursue a larger strategic acquisition, including a premium studio asset, to further strengthen its content ecosystem and long-term market position, we believe the current backdrop is supportive," BofA's Ehrlich said.

BofA reiterated its buy rating on Netflix's stock, but reduced the price target to $105 from $125. Oppenheimer lowered the price target to $85 from $100, while keeping the outperform rating unchanged.

Price: $68.73, Change: $-5.62, Percent Change: -7.56%

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