In 2025, Netflix notched a net profit of $11 billion on a 16% increase in revenue, to $46.6 billion. It expects revenue growth to cool off this year, projecting an increase of 13%-14%, while the streamer is aiming to boost operating margin by 200 basis points, to 31.5%. It has a healthy balance sheet, with $9.1 billion in cash and equivalents and very manageable total debt of $14.4 billion as of June 30.

So why did Netflix, which is still throwing off a good chunk of change, this week lay off around 1,000 employees — its biggest cutback to date?

Companies often make layoffs in crisis mode, such as when they’re facing near-term revenue shortfalls and they simply can’t make payroll. That’s not the case here. But Netflix faces a festering pain point.

Specifically, investors are worried about the slowdown in its U.S./Canada region — which has raised questions about its long-term growth trajectory. For the second quarter of 2026, Netflix’s UCAN revenue decelerated from 14% the prior quarter to 10% (partially due to its recent price hikes). The company also issued Q3 revenue guidance below analyst expectations. Shares of Netflix are down 20% year-to-date on fears the streamer’s days of double-digit gains are coming to an end.

Netflix’s 6% reduction in force and the move to boot chief content officer Bela Bajaria — replacing her with well-regarded industry veteran Peter Rice, who hails from Disney and 21st Century Fox — signal its attempts to get in front of the issue.

Multiple industry sources told Variety they think Bajaria is being made the scapegoat for Netflix’s larger problems. But content is the main engine that powers Netflix’s financials. As Variety’s analysis of Bajaria’s exit noted, Netflix hasn’t produced a “culture-defining hit in the vein of ‘Stranger Things’ in quite some time.” To be sure, 2025’s “KPop Demon Hunters” took the world by storm, but that was produced by Sony Pictures Animation.

Back to the all-important UCAN region: Total viewing hours in the U.S. and Canada declined in Q2, according to BMO Capital Markets analyst Brian Pitz. Netflix’s parting ways with Bajaria and hiring Rice “suggest[s] to us that engagement trends may have softened further in 3Q26E,” Pitz said in a research note Friday. The change in content leadership prompted the Wall Street firm to lower revenue estimates for Netflix’s Q3 and Q4 by around 1% each and to also reduce its 2027 revenue forecast by 1.5%. BMO’s model, Pitz added, “conservatively does not assume a UCAN revenue acceleration” until 2029.

Netflix co-CEO Ted Sarandos, in a memo to staff Thursday about the executive shake-up, seemed to acknowledge that the company needs a more robust content lineup in the U.S./Canada region. Sarandos wrote that he sees “an opportunity to take our slate to the next level, especially in UCAN where we have an outsize impact in creating big, buzzy hits that our members love and drive conversation around the world.”

And what about the tranche of 1,000 employees being laid off? Sarandos and co-chief Greg Peters told staffers in a companywide memo the job cuts are part of giving it the means to “invest aggressively in high-impact areas to improve our service and further drive growth and innovation.”

Note that Netflix isn’t alone in handing out pink slips. Disney — also profitable — has made three rounds of layoffs in 2026 across different parts of the business. Unlike Netflix, Disney is wrestling with the ongoing deterioration of linear TV. But echoing Netflix’s explanation for its RIF, CEO Josh D’Amaro and CFO Hugh Johnston have told the Street they’re looking to cut costs, including through layoffs, to “create incremental capacity to invest for growth.”

Netflix’s top brass will surely be asked for more detail on the restructuring (and their decision to swap out Bajaria for Rice) when it reports Q3 earnings next Tuesday, Oct. 20. That will be the kickoff to an intriguing quarterly earnings season for the entertainment sector, which will include the first print from David Ellison’s freshly minted Skydance Corp. — poised to ax thousands of staffers after the merger of Paramount and Warner Bros. Discovery.