Qwikster calamity socks Netflix stock
After trading above $300 in July, shares have tanked to near $75 on continued subscriber woes.
By InvestorPlace on Tue, Oct 25, 2011 8:00 AM
By Jeff Reeves, InvestorPlace.com
After trading at more than $300 in July, Netflix (NFLX -34.90%) was hovering around $77 a share Tuesday. It's all because of an earnings report after the bell Monday that showed customers left in droves and revenue missed forecasts by a mile.
The culprit is obvious: the ill-advised Qwikster scheme that aimed to split Netflix's streaming services and DVD delivery into two operations instead of a one-stop website. Qwikster was killed before it became a reality, but the damage remains to the once-loyal customer base of Netflix.
Post continues below.
Of course, the story here isn't that Qwikster took a toll on Netflix. That was painfully obvious months ago. The real story here is the continued descent of Netflix's stock and whether the company will ever truly be able to recover.
Hopefully, shareholders were aware they hadn't seen the worst of this debacle. Since September, we've known the company might be dealing with a defection of up to 1 million customers because of price increases and a general mishandling of the entire ordeal. And any Netflix investor or customer surely has strolled through online forums eviscerating the company and chief executive Reed Hastings for the move -- proving anger has not abated.
The true depth of this crisis became clear after the closing bell Monday. Netflix ended September with 23.8 million U.S. subscribers, down about 800,000 from June -- significantly worse than expected. Going forward, things look ugly, too. Most of the company's U.S. subscribers are streaming customers, with 21.45 million as of the end of Q3. But Netflix expects fourth-quarter streaming subscriptions to fall to between 20 million and 21.5 million.
Flat at best? Not very impressive.
Worst of all, a planned expansion into the United Kingdom will be costly, and the lack of expected revenue could mean a quarterly loss in the first quarter of 2012.
True, Netflix saw a big jump in profits, from $38 million in the third quarter of 2010 to $62.5 million this year. Revenue surged to nearly $822 million, $9 million above forecasts. It's not like Netflix is going bankrupt. And even if NFLX gets to $80, that will still be a gain of more than 50% in two years -- double the Dow Jones returns in the same period.
But the writing is on the wall. Netflix said loud and clear that it didn't care about its customers, and the company has a lot of work to do if it wants their trust back. This comes at the worst possible time, as the competition is heating up for NFLX. Hulu is considering an IPO, and Amazon (AMZN -4.40%) and Facebook are going heavy with streaming video.
Netflix has been on a red-hot run for a few years now, and it's difficult for investors to watch a darling stock like this crash to earth. However, those wishing and hoping for a second act at Netflix had better have realistic expectations.
The company has left the door open for future subscriber losses and a quarterly loss in 2012. Just imagine if management has miscalculated and things turn out much worse.
Given the track record of Hastings and others at Netflix, that wouldn't exactly be a surprise.
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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After trading at more than $300 in July, Netflix (NFLX -34.90%) was hovering around $77 a share Tuesday. It's all because of an earnings report after the bell Monday that showed customers left in droves and revenue missed forecasts by a mile.The culprit is obvious: the ill-advised Qwikster scheme that aimed to split Netflix's streaming services and DVD delivery into two operations instead of a one-stop website. Qwikster was killed before it became a reality, but the damage remains to the once-loyal customer base of Netflix.
Post continues below.
Of course, the story here isn't that Qwikster took a toll on Netflix. That was painfully obvious months ago. The real story here is the continued descent of Netflix's stock and whether the company will ever truly be able to recover.
Hopefully, shareholders were aware they hadn't seen the worst of this debacle. Since September, we've known the company might be dealing with a defection of up to 1 million customers because of price increases and a general mishandling of the entire ordeal. And any Netflix investor or customer surely has strolled through online forums eviscerating the company and chief executive Reed Hastings for the move -- proving anger has not abated.
The true depth of this crisis became clear after the closing bell Monday. Netflix ended September with 23.8 million U.S. subscribers, down about 800,000 from June -- significantly worse than expected. Going forward, things look ugly, too. Most of the company's U.S. subscribers are streaming customers, with 21.45 million as of the end of Q3. But Netflix expects fourth-quarter streaming subscriptions to fall to between 20 million and 21.5 million.
Flat at best? Not very impressive.
Worst of all, a planned expansion into the United Kingdom will be costly, and the lack of expected revenue could mean a quarterly loss in the first quarter of 2012.
- Related: Charts show the rally can't last
True, Netflix saw a big jump in profits, from $38 million in the third quarter of 2010 to $62.5 million this year. Revenue surged to nearly $822 million, $9 million above forecasts. It's not like Netflix is going bankrupt. And even if NFLX gets to $80, that will still be a gain of more than 50% in two years -- double the Dow Jones returns in the same period.
But the writing is on the wall. Netflix said loud and clear that it didn't care about its customers, and the company has a lot of work to do if it wants their trust back. This comes at the worst possible time, as the competition is heating up for NFLX. Hulu is considering an IPO, and Amazon (AMZN -4.40%) and Facebook are going heavy with streaming video.
Netflix has been on a red-hot run for a few years now, and it's difficult for investors to watch a darling stock like this crash to earth. However, those wishing and hoping for a second act at Netflix had better have realistic expectations.
The company has left the door open for future subscriber losses and a quarterly loss in 2012. Just imagine if management has miscalculated and things turn out much worse.
Given the track record of Hastings and others at Netflix, that wouldn't exactly be a surprise.
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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231Comments
45 seconds ago
Wake up, America! It has been proven time and time again that the consumer has the upper hand when it comes to how we are treated by big businesses. All we have to do is STOP BUYING and do without! We complain and complain but continue to buy. . . .and continue to get screwed. If we are going to keep paying their ridicules prices and outrageous fees, we deserve what we get. Stand up for what is right, America! ENOUGH IS ENOUGH!
2 minutes ago
You know what it is? People...regular people... are sick and tired of being nickeled and dimed to death...same reason that I am in the process of leaving Wells Fargo...ENOUGH! It's the principal of the thing, not the money.Netflixs got greedy and saw that maybe the new debit card fees being applied by the banks might fly....maybe we will reach a little deeper into our customers pockets too. ...John Q Public is starting to let corporations know...we have had enough
3 minutes ago
To anyone that can't stream netflex with windows 7 Home Premium(64 bit). You are doing something wrong works fine HERE. Checked Block buster out there streaming selection is worse. Hula used the free side, I don't think they come close right now to Net$flex, hope some one steps up and gives us a better choice. Time and lots of cash is what it will take. Liberal post cracked me up. Really its a CEO that's going going gone soon. GREED bet they wish they had that $300 a share back.
4 minutes ago
7 minutes ago
7 minutes ago
The sudden stock drop is a classic case of how the stock market is in effect worse than a casino. Just a few months ago the same analysts who have now downgraded and dumped the stock were saying what a sound business model Netflix has, and at $300 the stock still had room to grow. So the original valuation had no basis in reality. Wall street analysts will make their money whether the stock goes up or down, and Reed Hastings and some of his executive team may lose their jobs, but still walk away with millions. The losers will be the employees of these companies and the poor people who invested in this casino.
It also points out the discrepancy in pay for CEO's compared to average employees. We put these CEO's like Reed Hastings up on a pedestal as such brilliant thinkers, and pay them hundreds and thousands of times more than their own employees, and they consistently make these idiotic decisions. I love what Warren Buffet said about only investing in businesses any idiot could run, because someday one will.
It also points out the discrepancy in pay for CEO's compared to average employees. We put these CEO's like Reed Hastings up on a pedestal as such brilliant thinkers, and pay them hundreds and thousands of times more than their own employees, and they consistently make these idiotic decisions. I love what Warren Buffet said about only investing in businesses any idiot could run, because someday one will.
9 minutes ago
Netflix deserves what they get. They had a great business and enough customers with more coming along every day. They owe all their customers, current and those who left, a large apology. They didn't give a damn about any of them and only saw a way (they thought) to give themselves a bigger paycheck. HAH the joke's on them.
12 minutes ago
I have Netflix still, I stream, I will keep them along with my "over the air" TV stations I don't need cable. When they announced the split I went to streaming only. Not great loss, people mention Red box, well that is an excellent option for NEW releases, forget any older catalog DVDs and if you rent more then 8 DVDs (that $8 plus tax) a month you may have well kept your Netflix DVD service.
I stayed with Netflix because of their catalog. I looked at others and found theirs seriously lacking. On other stories about Netflix I read people complaining about being limited to 500 selections and stilll not having anything to watch, 500??? i got close to 200 and paired it back, it was annoying to go through that many to get want I wanted to watch.
Did Netflix make a mistake, most assuredly. Redbox isn't all that great, Hopefully Netflix will have learned from this error, I have a feeling they haven't.
We will see. I for one am happy with Netflix.
I stayed with Netflix because of their catalog. I looked at others and found theirs seriously lacking. On other stories about Netflix I read people complaining about being limited to 500 selections and stilll not having anything to watch, 500??? i got close to 200 and paired it back, it was annoying to go through that many to get want I wanted to watch.
Did Netflix make a mistake, most assuredly. Redbox isn't all that great, Hopefully Netflix will have learned from this error, I have a feeling they haven't.
We will see. I for one am happy with Netflix.
14 minutes ago
Why are they blaming this on Qwister? Had they changed to Qwister I would have cancelled Netflix but they didn't so I still have it. Didn't these people leave "in droves" because prices were raised. The Only reason the headline reads Qwister is because the company has decided to tell it shareholders they will remedy the problem by keeping dvds at Netflix and it was not about the egocentric way they raised prices in a bad economy(w/out tricking consumer duh!). Why is news reporting only an arm of a company and complete mouth pieces w/ no original thought?
19 minutes ago
21 minutes ago
22 minutes ago
Well I hope they stay in business because customers like me who live far away from town arent going to drive a long way and use gas just to rent a movie. If they go under, then I will just have to deal with it. We have no movie theaters in our town of 200 so will just have to hope that they end up on tv someday.
24 minutes ago
24 minutes ago
27 minutes ago
IT is amazing how OUT OF TOUCH they were with their customer base. I know I left when they decided they could command such a ridiculous rate increase. I think many others did the same. I really don't care what they call themselves. It is all in the service and the cost. Netflix has what I consider terrible streaming choices as well as technical issues. How they thought they could raise the roof like they did has cost them the entire company I would think.
I am using Redbox now and don't really see myself going back. I can pick up a lot of $1 movies really very easily and drop them off at any box.
Once customers leave any business it is hard to get them back. Probably impossible in most cases without a monetary offer that is too good to pass up!
I am using Redbox now and don't really see myself going back. I can pick up a lot of $1 movies really very easily and drop them off at any box.
Once customers leave any business it is hard to get them back. Probably impossible in most cases without a monetary offer that is too good to pass up!
27 minutes ago
28 minutes ago
29 minutes ago
That's the picture -- a horrendous loss in current customers, the forecast of future crippling losses and the chance of a money-spilling start to 2012. You have to wonder whether Netflix will ever get beyond the Qwikster disaster and the arrogance of Hastings. The Bible says that pride comes before disaster, and a haughty attitude before a fall. What a mess!
29 minutes ago
Netflix still doesn't get it. I just visited their web site and they have disabled their blogs so that they will not hear any more criticism. Cindy Holland, a VP at Netflix, has openly told complaining customers that they should, "take their money and go elsewhere." Apparently, they followed her advice.
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Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Gradient Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Telekurs.
Japanese stock price data provided by Nomura Research Institute Ltd.; quotes delayed 20 minutes. Canadian fund data provided by CANNEX Financial Exchanges Ltd.
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