Why Netflix Stock Dropped Today

Shares of Netflix (NASDAQ: NFLX) fell on Friday after analysts predicted a worrisome downturn in viewer engagement trends.

Views may be getting harder to come by

Wells Fargo analyst Steven Cahall placed an underweight (read: sell) rating on Netflix's stock. He warned that the streaming titan's share price could fall roughly 20% to $57.

Cahall is concerned about what he sees as a dearth of hit series. In turn, he estimates that views for Netflix's top 100 original shows could decline by more than 20%.

"Engagement trends look worrying to us," Cahall said. "Netflix has lacked big original series, and it's showing."

Cahall believes popular new shows are necessary to drive subscriber gains and watch hours, which are becoming increasingly important as advertising grows to be a larger part of Netflix's business.

No easy fix

Potential solutions would all come at a cost. Spending more in an attempt to create more hit shows would raise Netflix's content costs and potentially dent its profit margins. The same would be true if Netflix purchased more sports rights to boost engagement.

An acquisition to bolster its content library is another option. But the price is likely to be high. Netflix was recently outbid by Paramount Skydance for Warner Bros. Discovery's HBO Max streaming service and studio assets. Other takeover targets might also trigger bidding wars, and any potential merger would come with integration risks.

Wells Fargo is an advertising partner of Motley Fool Money. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.