Why Netflix Stock Plunged 11% in October

In October, Netflix's stock experienced a significant decline of 11%, driven by a combination of factors including the company's latest financial results, leadership changes, and concerns over user engagement. While Netflix's revenue grew by 12% year over year to $12.9 billion, with earnings per share (EPS) increasing 47% to $0.87, investors were less optimistic about the company's future.

Management forecasted revenue of $13.4 billion for the fourth quarter, up 11.5% year over year, and EPS of $0.67, representing about 20% growth. This forecast marked the fourth consecutive quarter of decelerating revenue growth, a concern for investors. Netflix had previously expected its 2026 ad revenue to double from $1.5 billion to $3 billion, but recently lowered the forecast to $2.7 billion, citing delays in the rollout and partner integration of new ad products.

The company also faced additional challenges as it announced plans to lay off around 1,000 employees, or 6% of its global workforce, marking the largest set of layoffs since 2022. This was followed by a shake-up in content leadership, with the replacement of the chief content officer and film chief. These moves came as Netflix reported waning viewer engagement, with subscribers watching 97 billion hours of content during the first six months of 2026, a 2% year-over-year increase.

Despite the negative sentiment, there are reasons to remain optimistic about Netflix's prospects. Ad revenue is expected to grow by 80% in 2026, with the ad-supported tier set to launch in 15 new countries, providing a significant boost to the ad business. Additionally, revenue and profits are still expected to grow in double digits, with free cash flow projected to increase 19% to $12 billion this year.

While the company's valuation appears relatively low at less than 19 times earnings, a multiple not seen since 2022, there is still significant pessimism priced into the stock. Nonetheless, given Netflix's consistent growth record, there is potential for another hit show to emerge, capturing viewers' attention and driving engagement, making it a "when," not an "if."