Netflix is losing viewers — but they're still subscribed

Netflix ( NFLX ) has a unique problem: subscription zombies.

The company is seeing sagging engagement in the US , while also claiming an industry-low churn rate. People aren't leaving the service, but they aren't watching it enthusiastically, either.

If the company's stock price — down 30% this year — is any indication , investors are fed up. But the steep fall from prior highs is, given the right insights and conviction, another buying opportunity.

That's how analysts at Deutsche Bank see things. In a note published Wednesday, Bryan Kraft made the case for buying the dip.

After the company reported third quarter earnings, Netflix shares fell to their lowest level in more than two years as the streaming giant missed estimates on the current quarter's revenue outlook and the full-year ad revenue forecast.

As management acknowledged there's room for its US business to do better , Kraft took a contrarian take.

Netflix viewing continues to grow outside the US, and in every region churn is down compared to last year, in every region, despite recent price hikes, he said.

"We found management's commentary on churn, international viewing, new content leadership, and their long-term growth outlook all pretty encouraging," he said.

The market has fixated on sagging time spent watching and a lackluster slate of content. But Kraft believes this stems from a weaker lineup compared to last year, rather than a deeper decline in quality.

Netflix's stock market struggle and its engagement problem both arrive with a dose of irony. After all, Paramount's ( SKYD ) stated justification for pursuing Warner Bros. was to get big enough to compete with Netflix. But Netflix is looking less like an indomitable tech giant and more like a beleaguered studio struggling to convince American audiences that it isn't a slop factory.

Netflix has a reputation for being the comfort streamer — the limitless provider of pleasant background noise while you fold laundry or try to fall asleep. That has value, of course. But YouTube gives you that for free. And TikTok and Instagram's Reels spare you the mental load of having to choose what to put on.

The recent executive shakeups also suggest that Netflix had ceded, or perhaps never really went after, the sought-after TV shows and movies that people associate with Apple TV and HBO Max.

But Kraft said that the growth outlook for Netflix remains healthy, even with some deceleration next year. There's member growth, price increases, more box office revenue, and advertising to support a more bullish thesis.