Shares of streaming giant Netflix (NFLX 0.39%) are down roughly 30% so far in 2026 and off 45% from the peak they touched about a year ago. That decline reflects investors' growing concerns over the durability of its competitive advantages in a crowded media landscape.
Since Netflix no longer publicly reports its subscriber growth numbers, investors will look for other ways to gauge the company's health when it reports second-quarter earnings on Thursday. As one of the leading streaming platforms, engagement is the foundation of its business model. Its ability to raise subscription prices and grow advertising revenue depends on the platform's ability to capture and hold a large share of its subscribers' viewing time.
Image source: Getty Images.
A shift in the attention economy
Competition for screen time now comes from all corners of the media world, putting more pressure than ever on Netflix's core business of offering on-demand shows and movies. The alternatives have expanded beyond premium streamers to include everything from live streamers on Twitch to podcasts that consume hours of user time to short-form videos on TikTok to co-creator gaming platforms like Roblox.
This environment makes it harder to maintain audience attention. On the content front, a planned new series from the producers of Stranger Things was recently canceled, and some popular returning Netflix shows have reportedly drawn smaller audiences in their second seasons.
When the company reports this week, investors will be watching the trajectory of revenue growth and margin expansion. However, management's response to a recent Wall Street Journal article that reported on the company's internal concerns regarding member engagement will likely take center stage.
Pressure on pricing power and ad growth
While Netflix remains profitable, a sustained decline in engagement would weigh on its ability to push through periodic price increases in the years ahead. It could also cap the growth of its ad-supported subscription tier.
The company's ad revenue is expected to double this year to roughly $3 billion, but that is still only about 6% of total sales. For the ad tier to become a more meaningful contributor, it needs a large and engaged audience.
NASDAQ: NFLX
Key Data Points
Management is exploring ways to counter the trend, including adding live channels and bundling other streaming services. These moves would be a significant shift for the company. The upcoming earnings call will be an important opportunity for management to address the engagement narrative and outline its content strategy.
