Netflix desperately needs to find the next Squid Game. The video streamer is struggling to churn out hits-and that's dire news for its shares, which have already taken a battering in 2026.

The stock dropped 3.7% to $72.52 ahead of Friday's opening bell. It was already down about 20% for the year through Thursday's close.

The catalyst for the selloff was a downgrade. Wells Fargo analyst Steven Cahall lowered his rating for Netflix to Underweight and slashed his price target to $57 from $80.

The new price target implies shares could slump another 25%.

Netflix stunned investors in July when it said it would would start publishing its flagship engagement report once instead of twice a year, fueling fears that it's bleeding subscribers to rival streamers.

"Engagement trends look worrying to us," Cahall wrote in a research note. "Netflix has lacked big original series and it's showing... We see breakout hits as a must for the stock to work again."

Disney looks like a "more hit-driven" streamer right now, he added.

There are ways for Netflix to stop the rot. It could plow more money into content, license more live sports content, or look to grow via mergers and acquisitions. The streamer agreed to buy Warner Bros. Discovery late last year, but lost a bidding war to Paramount Skydance.

Any of those options would probably create a "messier Netflix story" for investors, Cahall said. The analyst's $57 price target values Netflix stock at about 15-times expected earnings per share for 2027, compared to around 20 times as of Thursday's close.