NFLX: Netflix Stock Plummets On Weak Outlooks, Downgrades

NEW YORK — Netflix shares plunged 35 percent Tuesday after the one-time Wall Street favorite revealed a massive departure of subscribers angered by price increases and other questionable changes at the rental service that was created to make entertainment a snap.

Netflix revealed late Monday that it ended September with 23.8 million U.S. subscribers. That's down about 800,000 from June and worse than what the company had hinted at before. In September, the company predicted it will lose about 600,000 U.S. customers.

And it may get worse. Netflix said it expects more defections in coming months.

The exodus began after the company raised its prices by as much as 60 percent in July and split up its streaming and DVD rental services. Its website was flooded by comments from angry customers. Many people also canceled service, especially on the DVD-by-mail side. The company is betting that its future is in streaming video, and CEO Reed Hastings has said he expects Netflix's DVD subscriptions to steadily decline, much like what has happened to AOL Inc.'s dial-up Internet service.

But Netflix bungled a spin off its DVD-by-mail service, giving it the name Qwikster and creating separate accounts for people who wanted both DVDs and movie streaming. By doing so, the company created what many perceived as a more complicated rental process at a company that began its meteoric rise with a new, easier way of searching for and finding entertainment effortlessly.

Netflix shares fell $41.47 to close Tuesday at $77.37. The stock is down from more than $300 just 3 1/2 months ago. The last time the stock was trading so low was in April 2010, but that was during its steep ascent.

The results prompted a downgrade to "Neutral" from "Buy" from Citi Investment Research analyst Mark Mahaney on Tuesday, who also slashed his target price on the stock to $95 from $220. The analyst called the price increase and the abandoned plan to separate Netflix's DVD business two "major execution errors."

Netflix Inc. did report better-than-expected financial results for the third quarter, but that was drowned out by the din of subscriber cancellations, expense controls and a one-time tax benefit, said Wedbush analyst Michael Pachter.

Pachter cut his target price to $82.50 from $110 on Netflix's stock and kept his rating at "Neutral."

Los Gatos, Calif.-based Netflix said it does not comment on stock movement or analyst reports.

Comments

[mrdrummerboy88]

05:36 PM on 10/27/2011

wow, some of you act like the big shots care about your opinions. Gas prices increase by a huge percent and we are all ok with it but when Netflix raises their prices a couple of dollars the United States looses their minds. I bet 95% percent of the people writing how outraged they are on here blow that same $5 dollars on drugs, booze, and many other things that are not important.

Whoever cserij is, corporate greed, really.... really....¬.. stop living life because there is corporate greed everywhere¬. The car you drive, the food you eat, the bed you sleep on, the clothes you wear, all of which come from some business with executives eager to fill their pockets, GET OVER IT!!!!

Netflix is globalizin¬g their business. There are more cost associated when building a business. Have you ever heard "you have to spend money to make money". Why doesn't everyone that wants to have a say in this start a business and go global with a $5dollar bill. SHUT UP AMERICA! It makes me sick to my stomach to think there are people out there that really like to just complain and complain about every little thing.

ITS STILL CHEAPER THAN GOING TO THE MOVIES....¬WAIT LETS NOT OPEN THAT DOOR NOW!

[mi1buckeye]

08:37 PM on 10/27/2011

Excellent observations! These same people get taken everyday by their government and choose to look the other way. Netflix likely waited too long to raise their prices in the past...shame on them. Now these fickle supporters want their heads on a platter for a couple of bucks...typical wishy-washy, entitlist nonsense! Corporations put employees to work and food on their table. Quit bi#&%n.

[Barringtonmorr]

01:20 PM on 10/28/2011

i made a similar (shorter) comment a few pages back. I couldn't believe how many people complained about this when they throw money away on bs everyday. I made the point that a small price increase is not much compared to the thousands and thousands and thousands of movies and shows you're getting.

[cserij]

01:30 PM on 10/27/2011

I called them immediately when I heard that my plan (2 at a time w/unlimited streaming) was increasing by $5! I was very polite to the girl who answered the phone and asked if I should write a letter or talk to her. She said she would pass on whatever I said. I told her that I'm going to say the same thing I said to Blockbuster 5 years ago when they pulled the same thing. "This is a very bad business decision. People understand the whole inflation thing, we get it. I believe that existing customers should keep the same price they signed up with, and new customers should pay more - like my gym membership. If not that, then at least think about only raising the price $1 - as you probably won't lose customers, and you will still make a bundle of money. If you do this, you will be bankrupt within 5 years. There are, and will be other options, so I wouldn't mess with your existing customers". I just changed my plan to the $7.99 streaming option, but when I'm finished watching the series I'm into, I'm canceling that too - I can walk around the corner and get Redbox movies for $1. Goodbye Netflix, sorry corporate GREED took over :(

[KaySieverding]

01:00 PM on 10/27/2011

http://www.insidelg.com/forum/content.php?575-Town-Council-Meeting-August-1-2011-What-s-Going-on-Now
http://rickchangre.com/2011/05/18/proposal-for-buildings-near-netflix-blindsides-planning-commissioners/
http://www.bizjournals.com/sanjose/print-edition/2011/06/03/netflix-inc-expansion-project-stuck.html?page=all

Readers might find these articles about Netflix building plans to be interesting.

[AJ in ATL]

07:42 PM on 10/26/2011

The stockholders should sue the CEO for actions that harmed the stock. It didn't take a rocket scientist to see that this plan was doomed from the start and it is unbelievable that none of their board members said this was a bad idea.

[bbertaud]

06:11 PM on 10/26/2011

Does Netflix offers porn?

That could be the answer.....

[cserij]

01:15 PM on 10/27/2011

LOL!!!

[Honey111]

02:31 PM on 10/26/2011

I've been with Netflix from the beginning. I've always liked them. I hated going to the video store. Still do! I understand they had to raise their prices. It was by a bit more than I thought resaonable. Ok so I dealt with that...what can you do? The selection is a joke now. The quality a mess.
Netflix would have done well to revamp and come back. The slap-together solution they came up with has hurt them with their customers.

[amanofmanyfaucets]

12:31 PM on 10/26/2011

Defections? To Where? What other alternative is there? And what are people whining about. Netflix is cheap and it doesn't have any advertising. That will be the next move in streaming. I was perfectly happy with the way things were but all you babies had to complain.

You don't know when you've got it good.

[J0E1]

02:53 PM on 10/26/2011

Hulu Plus, Amazon Prime, and everyone else and their brother have or are starting a new streaming service.

[ILoveGreatDanes]

06:27 PM on 10/26/2011

There's a lot of alternatives. Amazon Prime has a streaming model similar to Netflix, and they are offering new content much faster at a slightly lower price.

[knickkfan]

06:16 PM on 10/27/2011

Amazon Prime is 79 dollars a year not that much cheaper than Netflix

[HighDesertBob]

10:55 AM on 10/26/2011

These guys went the wrong way on their pricing. They should have made it more attractive for their customers to take advantage of the streaming process by reducing the price and keeping the DVD price the same. This would have drawn more people to the streaming side, which, apparently, was their goal.

[ThinkingPatriot]

10:10 AM on 10/26/2011

No one wants the company to fail or for people to lose their jobs, but this is how capitalism works Mr Moto....I certainly didn't shed a tear when Blockbuster et al lost profits when Netflix grew

[J0E1]

10:47 AM on 10/26/2011

Bingo.  There are new companies to take it's place as we speak.  The way of the world.

[jwcmass]

12:06 PM on 10/26/2011

This doesn't seem quite the same as the failure not only of Blockbuster, but of many local video rental stores.

This decision on the part of Netflix reminds me more of Coca-Cola's decision to change its successful formula and come out with "New Coke".

This was so overwhelmingly rejected by consumers that we saw the return of "Coca-Cola Classic"

[cserij]

01:36 PM on 10/27/2011

You're right, it's not the same as Blockbuster, it's actually worse! I had the Blockbuster by mail plan, and they didn't jack the price by $5 all at once, but they did raise it 3 times in the short time that I had it. These companies need to learn to not be so greedy and give a little "thanks" to their loyal, long time customers by not raising their prices as much, only to new customers.

[Mr MOTO]

09:43 AM on 10/26/2011

2,200 hundred employees. The company allows their employees unlimited vacation time and allows them to take part of their pay in stock options ...

Yet all of you good little 'Progressives' are hoping for the company to fail? I don't get why you think you are all that 'progressive' ...

[RattleCat]

10:35 AM on 10/26/2011

Yea.....I guess not many are going for the stock options now.

[Mr MOTO]

10:47 AM on 10/26/2011

Perhaps not, especially if the strike was at $300. But now at $70 ... hmmm

[Lovelyblue]

09:35 AM on 10/26/2011

While it's not entirely thier fault for the price increase. In the long run the lack of tact is what got them.

[Caymus77]

09:35 AM on 10/26/2011

Netflix screwed up BIG time by taking it's existing customer base for granted. Streaming video MAY be the future but it is limited to markets that have the capacity to stream video. If you are not on a cable modem,you will not be streaming video. My take is that most of Netflix's customers don't stream video.
The board should be dismissed and the CEO fired(not given a golden parachute) for this boneheaded move.

[Lucille]

10:46 AM on 10/26/2011

I don't have cable rather I have a DSL modem and I stream Netflix all the time. I think the reason for the backlash is that Netflix was thoughtless and downright indifferent in the way they told their customers about the increase and although the increase seems nominal we are tired of being taken advantage of by greedy corporations and that’s why I’m a Netflix customer in the first place as I kicked cable to the curb because I no longer wanted to feed that particular corporate monster anymore.

[Caymus77]

12:06 PM on 10/26/2011

Hmmm...I guess it depends on the speed of your DSL. Either way,Netflix acted like the cable company that I abandoned.

[philss]

09:20 AM on 10/26/2011

good riddence to a bad dea
but thiscompany will survive on the backls of poor americans

[amanofmanyfaucets]

12:33 PM on 10/26/2011

What bad idea? Netflix is the best thing to come along in years. And what does its survival have to do with the "poor americans".

[johnrf]

09:02 AM on 10/26/2011

This seems like a victory for consumers. Netflix ignored and abused their customers and we, the consumers, taught them a lesson.

[amanofmanyfaucets]

12:36 PM on 10/26/2011

Victory? You are nuts. Netflix will probably be replaced by something worse, probably with advertising. Netflix didn't abuse their customers, they raised the price. Maybe not a good idea in the end but abuse??? Save your hyperbole for something that really deserves it.

[johnrf]

04:41 PM on 10/28/2011

Don't worry about me, I have an endless supply of hyperbole. You might be right that Netflix will be replaced by something worse. But eventually they'll be replaced by something better or they'll improve. When the raised the price they were doing fine, stock was healthy and they got greedy. Did you see the comments on their site at the time? They basically laughed at the outraged customers and were confident that they would win. They lost. The consumers won.

[doonooch]

08:59 AM on 10/26/2011

Time to buy