Netflix Loses 600k Customers In Q3, Things Likely To Get Worse

[Correction]

@Qwikster is now posting how he has 3 standing offers to buy his account. My guess is Buyer A is a squatter looking to raise the price if/when Netflix comes knocking; Buyer B is a 'consultant' working for hire to trick him out of it for cheap on behalf of Netflix corporate and Buyer C are organized internet trolls looking to run some pranks on Netflix.

[MaachaQ]

http://money.cnn.com/2011/09/19/tech...buzz/index.htm

Can Qwikster save Netflix stock?


By Paul R. La Monica @CNNMoneyTech September 19, 2011: 4:14 PM ET

NEW YORK (CNNMoney) -- Netflix CEO Reed Hastings apologized to angry customers after the company's price hike debacle. Does he need to make amends with Netflix shareholders too?

Shares of Netflix (NFLX) plunged 19% Thursday and another 8% Friday after the company cut its guidance for subscribers in the U.S. The stock, which had been one of Wall Street's hottest this year until Netflix announced the price increase in July, has plunged more than 50% from its 52-week high.

Hastings tried to end the controversy by announcing that going forward, Netflix's DVD and streaming businesses will be separate. The mail order DVD unit is being awkwardly renamed Qwikster.

Netflix rebounded a bit Monday morning on the Qwikster news, but wound up plunging again in late trading as the broader stock market declined on more Europe fears. Netflix finished Monday down more than 7%.

So it looks like the birth of Qwikster and Hastings' mea culpa aren't putting an end to the company's problems just yet. Here's why.

Even after last week's huge sell-off, Netflix remains a very pricey stock that has room to fall. Shares trade at about 35 times 2011 earnings estimates and nearly 25 times profit forecasts for 2012.

If you are willing to pay that much for Netflix, you can't afford mishaps like lowering subscriber targets by a million.

Even though Netflix did not change its revenue or profit outlook, some analysts wonder if consensus earnings estimates are now too high, given the reduction in subscribers.

Michael Corty, an analyst with Morningstar in Chicago, has an earnings target of $5.80 a share for Netflix in 2012. That's more than a dollar a share below the average estimate of analysts. Corty thinks a fair value for Netflix is $150 a share. That's a little bit lower than where the stock was trading Monday.

Netflix can't afford a streaming war

Netflix is clearly a great company, and it is still a leader in a dynamic business. But there is a big target on its back.

Netflix has attracted a large crowd of skeptical short sellers who look at the company's valuation and see an opportunity to take advantage of the shift in momentum.

As of late August, more than 8.5 million shares of Netflix were held by investors who believe the stock will go down. That amounts to about 17% of the company's available shares, or float. That's a fairly high amount.

Netflix also is going to face more attention from larger competitors.

Now that Netflix is demoting the DVD business by separating it from the more lucrative streaming operations, investors have to stop comparing Netflix with companies like Coinstar (CSTR)-owned Redbox and Blockbuster, which was acquired out of bankruptcy by satellite television firm DISH Network (DISH, Fortune 500).

The real rivals for Netflix are companies like Amazon (AMZN, Fortune 500), Apple (AAPL, Fortune 500) and Google (GOOG, Fortune 500), especially if one of those three winds up acquiring the online video service Hulu. That's daunting.

And even before the price hikes alienated customers, many subscribers complained that Netflix wasn't offering as much compelling video online as it does through the DVD catalog. That could remain a problem.

"Business is going to get a lot more competitive as Netflix goes from DVDs to streaming," Corty said. "There's a lot of talk about how great online video is, but the available streaming content for Netflix is pretty weak."

Of course, that can change. But Netflix will have to pay a pretty penny to Hollywood to get the most current and popular movies and TV shows.
Netflix addresses customers 'upset' with price hike

The contract dispute between Netflix and cable network Starz (which has licensing agreements with several major studios) illustrates the difficulties Netflix will continue to face.

"Media companies are in a better position than Netflix to decide on licensing content and choosing their terms," Corty said.

And if that wasn't enough to scare Netflix investors, the company also announced Monday that it is getting into the video game rental business. That's a big risk.

"Economic success is not a given, since games are materially more expensive than DVDs and have a substantially shorter life span than movies," wrote Youssef Squali, an analyst with Jefferies & Co. in New York in a note to clients Monday. "We note that Netflix has historically shied away from games exactly for these two reasons."

Finally, the split of the streaming and DVD units may have some unintended negative consequences for Netflix.

Tony Wible, an analyst with Janney Capital Markets in Philadelphia who has a "sell" rating on the stock, said that investors may be surprised once Netflix starts to break out specific revenue and earnings figures for Qwikster.

"By separating the businesses, the sum of the parts may be less than the whole," Wible said. "Netflix has had an irrational multiple because of hopes about the streaming division."

Wible said that the DVD business probably only deserves to trade at between 8 and 10 times earnings estimates on a standalone basis. So having more concrete numbers for the DVD business could drag down Netflix's overall valuation.

All that said, Wible didn't think that Netflix had any other options than to split Qwikster from streaming, given the customer backlash.

"This may be the best of bad alternatives for Netflix," he said.

Investors hoping to make a quick -- or is it qwik? -- buck on a Netflix rebound might want to think again before buying.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

[Katlan]

not surprised. Separating the streaming from DVD rental puts them in larger competition to all thee other services... and it makes Netflix less unique and sought after. I think it's just going to continue to go downhill for them unless they lower prices to entice ppl to come back. Price hike and company split is terrible

[kuronosan]

Caaaaaaaaaaaaaaaaaaancelled. So did all of my friends/family.

Hope this fucker likes eating his words. He's about to join the middle class.

[Katlan]

Caaaaaaaaaaaaaaaaaaancelled. So did all of my friends/family.

Hope this fucker likes eating his words. He's about to join the middle class.

I was going to cancel until I realized I don't get the rest of my month, which I paid for 3 days ago. No matter when you renewed, if you cancel you have 7 days to return your movies /fail

[Misa misa]

I just canceled my 1 dvd option. Still going to keep streaming until I run out of things to watch. Then I'm canceling!

[Pharaun]

Netflix stock is continuing to tank, down almost 80 points since word came out about the subscriber cancellations last week and then the Netflix/Qwikster announcement. It's down almost 175 points since the announcement of the price hike in July. The company is going to need to do major damage control to try and reverse this trend, but if their idea of damage control is the Netflix/Qwikster announcement then they could be in serious trouble.

[Doombear]

Not judging, just curious. Why is everyone in this thread that has cancelled made that decision? My bill increase was no more ridiculous than cable bill jumping up a few dollars, or phone bill, or... shit rent? Just wondering though, is it the grim outlook? So get out now? I just don't see a reason yet to drop em, and want to know why people are jumping ship.

[Katlan]

Not judging, just curious. Why is everyone in this thread that has cancelled made that decision? My bill increase was no more ridiculous than cable bill jumping up a few dollars, or phone bill, or... shit rent? Just wondering though, is it the grim outlook? So get out now? I just don't see a reason yet to drop em, and want to know why people are jumping ship.

For me, it was because price hike seemed so coincidental to them pushing out all the competition. Once that happened they then decided to raise prices. I can maybe understand them increasing streaming costs since that is a huge sink that is only growing, but to increase DVD/bluray rental monthly fee is retarded since that price structure hasn't changed... it's them being greedy.

And now I have to go to two sites to check for movies / streams? I liked Netflix because it was all in one.. now that it's separate it makes em no longer unique and much more susceptible to competition

[Correction]

Not judging, just curious. Why is everyone in this thread that has cancelled made that decision? My bill increase was no more ridiculous than cable bill jumping up a few dollars, or phone bill, or... shit rent? Just wondering though, is it the grim outlook? So get out now? I just don't see a reason yet to drop em, and want to know why people are jumping ship.

Folks are canceling because the amount of streaming content is about to go down a lot, when it was pretty second-rate to begin with. Folks happy with the DVD by mail part of things probably aren't canceling, but this represents a dwindling share of the market. This leads many to believe Netflix is a sinking ship, apart from their Wall Street woes. Whether the future is having true a la carte selections directly from content providers or a new wave of Napster But This Time For Video is an open question largely contingent on whether or not the aforementioned content providers can get their heads out their asses and provide an affordable replacement for Netflix.

[Doombear]

I can get the 'you greedy bastards don't deserve my money or loyalty' cancellation. But I have a harder time understanding the cancellation because they are (probably) going to have a lessened selection soon. If that happens, I suppose I will consider dumping it. As it stands now though I have about 250 titles in my Instant Queue. Added a ton of Korean 4-5 star flicks I hadn't seen just yesterday.

Starz I was always a bit disappointed with. The lack of HD streams made it meh to me. I guess I am just surprised by the early ship jumping. It is definitely on fire a bit, as shown by the stocks, but at this point I personally have no reason not to stick around and see what happens. Again, not at all saying you should too. I am just a little surprised by the exodus.

[Callisto]

I can't speak for others, but I know that my g/f and I only have time to watch about 3-4 DVDs together per month, it'd cost us half of what she'd pay for the DVD services to just use Redbox. Not necessarily a backlash at them specifically for changing it, just that we used the service mainly for the streaming and the DVD rentals were a bonus when they didn't have what we wanted online.

I'm more concerned about the content vendor disputes than anything, yes they are probably getting boned a bit by the media groups but guess what, they own the content, they're the ones who get to dictate the terms, as shitty as they may be(I think Starz wanted tiered pricing plans, fuck that). Starz owns some heavy-duty shit though, like rights to Disney and Sony Pictures content, if Netflix thinks that someone else won't jump on Starz content for the price that Starz wanted out of Netflix they're very likely wrong. And trying to get 'original content' is all well and good, but there's a reason why major studios don't pick up a lot of indie stuff, and it's because for every gem of an indie movie that gets overlooked there's 200 ones that are fucking awful, the only people who are going to pay to stream a bunch of scraps that Hollywood didn't want are hipsters. I like Netflix and I enjoy using their service and so long as they have content I'm interested in they'll get my money, but the second they don't I'll have a Hulu or w/e account instead, simple as that.

That said they did score some very, very big non-Starz pickups recently with things like the AMC shows, Breaking Bad/Mad Men are monster content pieces for them, if they can grab Walking Dead as well those 3 shows on their own will snag a ton of viewers.

[Pharaun]

Not judging, just curious. Why is everyone in this thread that has cancelled made that decision? My bill increase was no more ridiculous than cable bill jumping up a few dollars, or phone bill, or... shit rent? Just wondering though, is it the grim outlook? So get out now? I just don't see a reason yet to drop em, and want to know why people are jumping ship.

I cancelled because the value for the price (for me) went to hell when they raised the price. I'm also pretty picky about the films/TV shows that I watch and I had seen pretty much everything that I wanted to on the streaming side. The decision to split the two services into separate companies just cemented my resolve to not go back since they are no longer offer the unique service of getting streaming content and DVDs/Blu Ray from the same place.

[Pharaun]

double post...

[Timwakefield]

Not judging, just curious. Why is everyone in this thread that has cancelled made that decision? My bill increase was no more ridiculous than cable bill jumping up a few dollars, or phone bill, or... shit rent? Just wondering though, is it the grim outlook? So get out now? I just don't see a reason yet to drop em, and want to know why people are jumping ship.

For me it was because the streaming content is complete balls. I was already getting fed up with not being able to watch the things I wanted and was considering cancelling anyway, but then the price jump just gave me the sack-punch I needed to finally do it. Couldn't justify the means when I can get far more content by other methods, legal and il-.

[Doombear]

For me it was because the streaming content is complete balls. I was already getting fed up with not being able to watch the things I wanted and was considering cancelling anyway, but then the price jump just gave me the sack-punch I needed to finally do it. Couldn't justify the means when I can get far more content by other methods, legal and il-.

Well I do think that Netflix is getting that sack punch returned to them at the moment. =)

I really am curious to see what if anything they can do about it. I find it interesting, like most others, that they destroyed the long standing business models of places like Blockbuster and Hollywood Video and then started looking just like them. I find it a little humorous that they tossed out AOL's name in their email. I feel a little un-Oregonian at the moment by continuing to pay them, but I will continue my loyalty a bit longer at least.

[Callisto]

I find it a little humorous that they tossed out AOL's name in their email.

I found the Borders name-drop much more funny considering that they just went out of business, lol.

[Salodin]

I found the Borders name-drop much more funny considering that they just went out of business, lol.

I thought this was odd too...

[Doombear]

Well I took that as the point. That companies that don't adapt to what people want, or wait too long to do so, are doomed. I just found it funny that they chose AOL as they are just a joke no matter how you use them anymore.

[Acturus]

I haven't cancelled yet, but I think I will be once Starz closes out. We only have the streaming service right now, so the price hike was no big deal to me. In fact, the only reason we went to Netflix was because $26 a month for "teh moviez channels" was too much money for not enough use on our cable account.

Netflix has a number of pretty good options for my three year-old in terms of shows and movies that appeal to his demographic. I think Leapfrog or something has videos on the streaming service.

But overall, I'm not even using $7.99 worth of stuff a month on the streaming side, so I really don't know how many more months I'll let it bill me before I care enough to cancel. My one hope is that in all of this, some sort of nonsense customer loyalty program comes through, or Netflix secures a major deal (yarite) to get customers back.