Interesting News for Netflix Stock Investors — NFLX STock Analysis

[00:00:00] Speaker 1: we got some interesting news for netflix stock investors as the company announced it will be laying off six percent of its workforce i actually think the company is just changing the type of workers it wants to employ at a time when the business is growing and the streaming tailwinds are increasing i think netflix needs more people on hand not less however i think they might need a different kind of employee and that's what's causing this disruption let me share with you these details in the announcement what i think about netflix stock and update you on my fair value [00:00:33] parkev: estimates for netflix i want to thank the motley fool for sponsoring this video visit fool.com parkev for the 10 best stocks to buy now so netflix said wednesday that it'll cut six percent of its [00:00:47] Speaker 1: workforce which is roughly about 1 000 employees and this marks the largest reduction of employees since 2022 if you remember towards the end of 2022 is when the central banks in the united states were increasing interest rates quickly and companies including netflix were fearful of an oncoming recession and so they prepared ahead of time by laying off workers and preparing for more cost-cutting efforts a recession never came around but the companies never rehired all of the people they let go and and profit margins increased substantially since then now in late 2026 interest rates are rising again and again companies are fearful of a macroeconomic slowdown they're preparing their cost structures in anticipation of that potential slowdown so according to an email to employees from co-ceos ted sarandos and greg peters the cuts will come across global operations with the focus on its product human resources technology and legal departments and i think these are cuts in certain categories and then there will be additional investments in other categories notably in ai related roles in ai supporting content creation in ai improving productivity i think netflix is going to be on the cutting edge of hiring ai and incorporating ai into their operations because this is a company that seems likely to benefit or not overall benefit because there's also a lot of content creation happening from studios that are using ai exclusively to create content and that's increasing competition so i'm not saying ai will be a net positive for netflix however netflix can incorporate ai into its own production services reducing the cost of content production investors couldn't make up their mind whether or not this cost cutting announcement was good news or bad news initially the stock was up 0.3 percent on wednesday before reversing and as of this recording netflix stock is down over one percent on wednesday that being said the broader stock market is also down as a result of the inflation figures that came out today that were hotter than expected the management team went on to say that netflix will continue to invest aggressively in high impact areas which is what led me to believe that this is not an overall cost cutting effort but rather a shift in where those costs are allocated netflix wants to invest more in certain categories but they don't want to increase the overall head count so they're reducing roles in certain categories so that they can add roles in other areas of course the timing is interesting as netflix is scheduled to report earnings next week after the stock markets close on tuesday october 20th i'll be going live to cover those earnings results netflix is the largest position in my portfolio so i'm eagerly awaiting those results my live earnings reaction will be exclusively for channel members so if you're interested in attending that event click that join button below and get yourself a channel membership you can get access for less than five dollars a month and it'll get you access to that live earnings event for netflix and then later on in the month i'll be covering the other big cap tech companies including alphabet i'll be going live for those earnings results as well again exclusively for channel members so in the company's latest earnings call the cfo adam newman responded to a question surrounding the company's lower growth in engagement and revenue saying they continue to see healthy acquisition and retention trends on the membership side and their recent price adjustments are going well on the pricing side investors were not convinced with this response engagement was up low single digits in the first half of 2026 after being up low single digits in 2025. the overall streaming industry is growing faster content consumption is increasing faster than low single digits so netflix is losing viewing share or market share on viewers content consumption habits the most significant competition in my view is short form content people are spending more time on tick tock instagram reels and youtube shorts and that's been a negative for netflix whenever i see a company making layoffs i revert back to and check back in with their revenue per employee figures i want to see the direction that's been heading and whether or not it warrants a cost cutting effort typically when i see a company's revenue per employee decreasing that's a sign that maybe they're getting bloated in terms of headcount but i don't see that with netflix in fact i see the opposite its revenues per employee have grown substantially since 2017 when they were generating about two million dollars per employee now that figure is above three million dollars per employee so they're healthy in terms of revenue per employee and the trend line in revenue per employee so again this points to more evidence that netflix is not trying to trim the overall headcount but rather they're trying to shift where they allocate their headcount budget netflix shares are down significantly since last year ever since initial rumors started to surface that netflix would make a bid to acquire warner brothers studios ultimately they stepped back away from their bid and they earned the hefty fee for their efforts still investors have turned sour on netflix stock since that moment netflix is now trading at a forward price to earnings of just 18 and a half and this is the cheapest netflix stock has traded for going back several years netflix stock also looks undervalued when i look at it on a discounted cash flow basis i calculated a fair value of 116. the market price today is 69.72 that leaves me with an upside of 65 percent over the next 12 to 18 months so you can see based on these calculations why i'm so optimistic about netflix stock why i made netflix stock the largest position in my portfolio and i'm interested in adding more if netflix stock remains at these levels throughout this year all else being equal don't forget to mark your calendars for those live earnings results coming out tuesday october 20th after the stock markets close around 1 15 p.m pacific standard time i'm looking forward to seeing you all there and going over netflix's highly anticipated quarterly financial results