Netflix (NFLX) Plummets Anew as it Revises Down Subscriber Estimate

The hits just keep coming for Netflix (NFLX) … after the bad news from Starz at the beginning of the month, the backlash from July’s move to raise prices by 60% on combo plans seems to have hit the rate of growth of subscription growth.  I still think net net, the price increase will more than offset subscribe losses – but with momentum stocks, you simply cannot have any warts.  The stock, which was bulletproof, has seen an extreme loss of market cap (40%) since its early July high.

Via Reuters:

  • Netflix Inc cut its third-quarter forecast by 1 million U.S. subscribers, sending its shares down nearly 15 percent, after a price increase earlier this month caused customers to shy away from its DVD-only service.
  • In what Wall Street has called a “rare, large and surprising misstep” by Netflix Chief Executive Officer Reed Hastings and his team, the company said it would have 24 million subscribers at the end of the third quarter, down from a prior forecast of about 25 million.
  • Fewer customers than expected are opting to take Netflix’s DVD-only subscription package. The company now expects to have 2.2 million such subscribers, down from a previous forecast of 3 million.
  • The company also cut its forecast for streaming-only subscribers, to 21.8 million from 22 million.
  • Lazard Capital analyst Barton Crockett expressed concern that the changes might also hurt Netflix’s fourth quarter.  “Clearly, if the third quarter is slipping, there’s risk to the fourth quarter, as the year-ago period was a time when everything went right for Netflix,” he said in a research note.
  • The Los Gatos, California, company’s decision to increase the monthly subscription for a joint streaming and DVD rental service by as much as 60 percent caused an uproar among customers and bloggers.  Netflix, which is under pressure from Hollywood studios and pay-TV rivals on its aggressive pricing, has argued that it sees the future in lower-cost streaming services.
  • Netflix “can’t grow as fast the Street thinks,” said Wedbush Securities analyst Michael Pachter, who rates the company’s stock at “underperform.” “They can’t have the perfect world where content stays cheap and people sign up at low prices.”
  • However, Netflix maintained its third-quarter financial outlook as well as its international subscriber forecast.

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About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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