Wow. That is what you call a bad day at the stock exchange. Not for the traders who have probably still managed to make a load of money, but for Netflix, which has seen hundreds of millions wiped off its value. Where do we go from here?
The Past
It’s fair to say Netflix has had a tumultuous past few months. And the pain isn’t yet over.
In July Netflix announced an end to the dual pricing plan which saw customers getting DVD rentals and streaming for a combined $9.99. Instead each would cost $7.99 separately, meaning a relative price hike of 60 percent. That didn’t go down too well.
Phase two of the plan to split the business in half was, well, to split the business in half. Qwikster was to be the Netflix for DVDs, with Netflix being the Netflix for streaming. If that makes sense whatsoever. That decision was then reversed after a storm of protest.
Despite all this I and many others shared the belief that Netflix would bounce back stronger than ever. But today has dented that confidence a little, as Netflix has taken a hammering in Wall Street. The future is now looking a little dire from where I’m sitting, at least in the U.S.
The Present
Yesterday Netflix released its Q3 earnings [PDF]. The company ended the quarter with 23.8 million subscribers, slightly down from expectations. Revenue was $822 million and earnings were $1.16-per-share, both slightly up from expectations.
The figures didn’t go down well in Wall Street, however, with shares closing the day down 35 percent. They’re currently at $77.37, down 75 percent on the high of $305 before this mess began. In three months Netflix has lost around $10 billion in market value.
The Future
Many analysts are now advising investors to sell their stock in the company. Janney Capital Markets analyst Tony Wible said in a note to clients, “We believe the (Netflix) model is unsustainable, as the company faces rising costs that it hoped it could pass onto its (subscribers), who appear unwilling to do so.” And that viewpoint seems typical.
I still have a sneaking suspicion Netflix will stage a comeback at some point. After all, it still has almost 24 million subscribers in the U.S. alone and is ramping up its international expansion. But there are legitimate concerns that Netflix is disappearing into a hole it will struggle to climb out of. Kind of like MySpace back in the day.
