Netflix shares slump on subscriber woes

Subscribers give up on the video-rental company. The Dow rises 105 points as Caterpillar batters estimates. Europe inches toward a deal on its debt-and-banking crisis. Oil jumps above $91.

By Charley Blaine Oct 24, 2011 2:08PM

Charley BlaineUpdated: 11:54 p.m. ET

 

Shares of Netflix (NFLX) were down 26.4% to $87.43 after hours as the video-rental company's third-quarter results caused many investors to dump their shares as quickly as they could.

 

The problem was that subscription growth fell from the second quarter as more than 805,000 customers dumped the service after the company wanted to separate streaming subscriptions from traditional DVD subscriptions, a move that would have raised subscription rates.

 

The move -- and a parallel move to create two brands -- forced the company to cut its fourth-quarter earnings guidance to 36 cents to 70 cents a share; analysts had been looking for 95 cents. Netflix shares, which closed at $118.84 in regular trading, are down more than 61% from their $304.79 peak on July 13. 

 

Meanwhile, the market moved higher on strong earnings from construction-equipment giant Caterpillar (CAT) and gains in financial and materials stocks.

 

The Dow Jones industrials ($INDU) closed up 105 points, or 0.9%, to 11,914. The Standard and Poor's 500 Index ($INX)  was up 16 points, or 1.3%, to 1,254, and the Nasdaq Composite Index ($COMPX) added 62 points, or 2.4%, to 2,699. The index topped 2,700 several times during the day; it hasn't closed above that level since Aug. 1. 

 

Article continues below.

In additiion, there were continuing hopes that the eurozone nations will come up with a solution to their debt-and-banking crisis by Wednesday.

 

Netflix wasn't the only earnings miss after the close. Texas Instruments (TXN) shares were down 1.6% to $31.20 after hours as the semiconductor missed Street estimates.

 

The company earned 51 cents a share in the quarter; Wall Street was looking for 58 cents. The company said costs from its acquisition of National Semiconductor reduced earnings by 9 cents a share.

 

As stocks moved higher, so did crude oil (-CL), gold (-GC) and silver (-SI).


Stocks look to open slightly lower on Tuesday.

 

A really big rally for stocks

If the market can hold at current levels, this may be the best month for the Dow since April 1999, since December 1991 for the S&P 500 and since April 2009 for the Nasdaq. October has been that kind of month.

The rally is powerful enough -- 15% or more since intraday lows on Oct. 3 -- that many skeptics have switched their year-end forecasts, ratcheting their closing predictions for the major indexes higher.

Caterpillar's big earnings report
Caterpillar, up 5% to $91.77, was the top performer among the 30 Dow stocks and was responsible for about 31% of the gain for the blue-chip index. The company reported third-quarter income rose 44%. Earnings excluding one-time charges came to $1.71 a share, exceeding the consensus estimate of $1.57. Demand for shovels and drills used to dig up metals rose.

Backlog orders standing at record levels and higher commodity prices have led to a favorable environment for its growing mining business. The company expects to post record results in 2011 and improve on those results next year.

Caterpillar's results suggested that the domestic economy may not fall into recession any time soon. Europe is a different question because it is not clear that, with austerity measures being imposed in many countries, the continent can avoid a recession.

A big week for earnings
Caterpillar is part of a big week for earnings. Companies due to report this week include:

Tuesday: Amazon.com (AMZN), 3M (MMM), DuPont (DD), Peabody Energy (BTU) and United Parcel Service (UPS).

Wednesday
: Boeing (BA), Ford Motor (F), Glaxo SmithKline (GSK), ConocoPhillips (COP) and Norfolk Southern (NSC).

Thursday
: ExxonMobil (XOM), Aetna (AET), Colgate-Palmolive (CL), Procter & Gamble (PG) and Royal Dutch Shell (RDS.A).

Friday
: Chevron (CVX), Merck (MRK), Goodyear Tire & Rubber (GT), Newmont Mining (NEM) and Whirlpool (WHR).

 

Will the European solution work?
Supposedly, the 17 eurozone nations are working toward a solution to their debt-and-banking crisis, to be announced Wednesday, and it may look like this:

  • An expansion of its European Financial Stability Facility rescue fund, which is what Greece is counting on to pay its bills. This may not be as big as some would like and may add  pressure to Italian and Spanish bonds.
  • A demand that investors in Greek bonds agree to writedowns of as much as 50% of their face amount.
  • A recapitalization of European banks so that they can absorb market shocks. The big fear about a Greek default is that it could generate huge losses for many banks and set off a credit panic. A weekend summit suggested the recapitalization might costs 100 billion euros (or $139 billion). Many analysts, however, believe the number should be north of 200 billion euros, or $280 billion.

There is a lot of skepticism about an announcement that purports to be the big solution. "There is a risk that any bold announcements made on Wednesday do not stand up to closer scrutiny," economist Ben May of Capital Economics wrote today. "In the past, eurozone policymakers have not been afraid to use smoke and mirrors to make deals sound more impressive than they really are."


Energy prices -- New York close



Mon.

Fri.

Month chg.

YTD chg.
Crude oil (-CL)

$91.27

$87.40

15.24%

-0.12%
(per barrel)











Heating oil (-HO)

$3.0546

$3.0175

9.91%

20.08%
(per gallon)











Natural gas (-NG)

$3.6040

$3.6290

-1.69%

-18.18%
(per mil. BTU)











Unleaded gasoline (-RB)

$2.6888

$2.6846

5.94%

9.60%
(per gallon)











Brent crude 

$111.21

$109.56

8.22%

17.37%
(per barrel)











Retail gasoline

$3.4510

$3.4560

0.17%

12.34%
(per gallon; AAA)












Strong results from China and Japan
While Europe was inching toward a deal, China's manufacturing sector returned to expansion in October as HSBC's PMI index rose to a preliminary five-month high of 51.1 from 49.9 in September.

Japan posted a $3.9 billion trade surplus in September as exports rose 2.4% year-on-year. Both indicators topped forecasts and have recovered all their losses since the March earthquake.

Commodity prices rise
Crude oil shot up 4.5% to $91.33 a barrel on the Chinese and Japanese news.

Gold settled up $16.20 to $1,652.30 an ounce. Silver (-SI) added 45.1 cents, or 1.5%, to $31.644 an ounce. Copper (-HG) jumped 7% to $3.339 a pound.

The euro rose against the dollar. The stock market rally drew money away from bonds. So interest rates were higher. The 10-year Treasury yield rose to 2.234% from Friday's 2.203%.

 

Freeport-McMoRan Copper & Gold (FCX) jumped 8% to $39.50.  

Some deals to cheer about
Health care management company Cigna (CI) said it will buy Nashville-based HealthSpring (HS) for $3.8 billion, or $55 a share in cash. HealthSpring shares shot up 33.7% to $53.70; Cigna shares were up 0.6% to $45.96.

Oracle (ORCL) said it would buy RightNow Technologies (RNOW) for $1.43 billion. Oracle shares rose 2.3% to $32.87 while cloud services provider RightNow jumped 19.4% to $42.94. 

Mattel (MAT) said it would buy HIT Entertainment, which owns preschool brands such as Thomas & Friends, Barney and Bob the Builder, for $680 million in cash. Mattel shares were up 2.1% to $28.41.

Separately, Google (GOOG) is considering bidding for troubled Internet search pioneer Yahoo (YHOO), according to a news report. Yahoo shares added 3.7% to $16.71 while Google shares rose 1% to $596.42.


Short hits from the markets -- New York close



Mon.

Fri.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.0500%

0.050%

150.00%

-58.33%
5-year Treasury note 

1.086%

1.055%

12.54%

-46.13%
10-year Treasury note

2.234%

2.203%

16.11%

-32.41%
30-year Treasury bond

3.278%

3.252%

12.22%

-24.85%
Currencies











U.S. Dollar Index

76.262

76.628

-3.56%

-3.82%
British pound

1.5997

1.5952

2.69%

2.51%
(in U.S. $)











U.S. $ in pounds

£0.625

£0.627

-2.62%

-2.45%
Euro in dollars

$1.39

$1.39

4.42%

4.14%
(in U.S. $)











U.S. $ in euros

€ 0.718

€ 0.721

-4.23%

-3.97%
U.S. $ in yen 

76.22

76.22

-1.18%

-6.33%
U.S. $ in Chinese

6.40

6.38

0.29%

-3.30%
yuan











Canada dollar

$0.997

$0.991

4.45%

-0.60%
(in U.S. $)











U.S. dollar 

$1.003

$1.009

-4.19%

0.60%
(in Canadian $)











Commodities

 

 

 

 
Gold (-GC)

$1,651.90

$1,636.10

1.82%

16.22%
(per troy ounce)











Copper (-HG)

$3.449

$3.223

9.42%

-22.44%
(per pound)











Silver (-SI)

$31.6440

$31.1930

5.19%

2.29%
(per troy ounce)











Wheat (-ZW)

$6.4250

$6.3200

5.46%

-19.11%
(per bushel)











Corn (-ZC)

$6.5100

$6.49

9.87%

4.58%
(per bushel)











Cotton 

$0.9794

0.971

-2.25%

-32.37%
(per pound)











Coffee

$2.5360

2.4755

10.79%

5.45%
(per pound)











Crude oil (-CL)

$91.27

$87.40

15.24%

-0.12%
(per barrel)










 
56Comments
Oct 24, 2011 2:58PM
avatar
Oil above $91 dollars a barrel. This is just what our economy needs, higher prices. Maybe this time, we can go into a full fledged depression. I cannot believe that these idiots have the balls to raise oil prices again. There are absolutely no fundamentals to support these prices right now considering the state of our economy. I guess it is time once again to only buy the essentials that I need to get buy and to keep my wallet closed. Please join me and than we will see what that does to the big stock market. These people need to have their heads examined to see if they have a brain cause they sure as heck do not have any heart for people in this country.
Oct 24, 2011 5:14PM
avatar

Netflix is getting what they deserved.  I fired them.

Oct 24, 2011 5:35PM
avatar
Here's how to get the markets attention. All you BOOMERS who have your IRA's in the stock market, sell them, sideline for 6 months, and let the greedy day traders play with their own money for awhile.  It will have a much larger affect than "occupy wall street".  Maybe we could call it "drain wall street".
OOOOOhhh..I like that! Thumbs up credit union savings right now are at least a guaranteed return
Oct 24, 2011 5:28PM
avatar
I hope Netfilx tanks over their extremely poorly timed increase in fee's. Right when everyone is hurting the most, Netflix decides it's going to act like an oil speculator, and raise prices for no reason. Nice work.
Oct 24, 2011 5:22PM
avatar
So Oil jumps 4.5% because of  Japan's trade surplus.  Well, Merry Effin' Christmas. Here comes $4/gallon gas just in time for the Holiday Shoppers.  Hey speculators, I got a lump of something for YOUR stocking and it ain't coal .  Make sure all the retailers thank YOU for a dismal Christmas season....MORONS!
Oct 24, 2011 2:50PM
avatar
Wow now it is Caterpillar that is the market indicator; the recession is over people, go back to work...What you say you can't find a job still??? & people are losing their jobs as we speak but yet Caterpillar & Oil rise & the they sayers, say everything is fine for YOU??..Charley Blaine were you grasping for something to write today???
Oct 24, 2011 4:29PM
avatar
 It is all about politics from here until 11/12. I say vote them all out. If not all then 2 for sure.
Oct 24, 2011 5:29PM
avatar
Here's how to get the markets attention. All you BOOMERS who have your IRA's in the stock market, sell them, sideline for 6 months, and let the greedy day traders play with their own money for awhile.  It will have a much larger affect than "occupy wall street".  Maybe we could call it "drain wall street".
Oct 24, 2011 5:23PM
avatar
gas keeps going up again for no reason.  someone is being greedy.
Oct 24, 2011 6:33PM
avatar
How in the world can just a hand full of companies reflect the so call broader market as a whole? I've never understood why. Just because one company may have a good day or a bad day how does that direct the entire market as a whole? There is something very wrong here.
Oct 24, 2011 3:46PM
avatar
 I read that the the good news out of China was the push behind oil. If China is it then why did WTIs increase more than double the increase in Brent. Maybe it is becuase we export our cheap oil and then import more expensive oil. The whole oil business is crooked. They have us by the short hairs and know it. I wonder how many politicians are playing the oil markets?
Oct 24, 2011 5:06PM
avatar
Lets see Oil up dollar stronger?hummmm? demand down...Oil higher?hummmmmm....
Camel farts,pirate rowboat yelling at a tanker?hummmm... Katrina,Libya,Iraq,I​ran,Northeaster possably hitting the norht east,Japan earthquake!!!!  
Sorry now I understand Earthquake in Turkey how stupid of me.

BP spills Millions of gallons of oil in the gulf two years ago prices did not move at all ??? humm.... Why is that?

When is the commander and chump going to go on TV and tell the nation he is going to do something about this issue and then actually do something!!!@@#$@%^^​!@*(!)*&%$#@.

Price will move .10 a gallon  on this $ 4 increase overnight or at least by weeks end. Drops 30 bucks a barrel drops .25 cents here on LI NY.
Need to get ready for the holiday driving season,and the unexpected cold weather gripping the north east.... Total B/S.

Keep writing your local and state representatives they are still working on the price gouging from months ago. LOL
Oct 24, 2011 3:57PM
avatar
The BBC reports that BP can resume drilling in the Gulf of Mexico. It must be a secret in the US.
Oct 24, 2011 2:37PM
avatar
The first 24 words make me laugh the most!       Gawd I "hope" there's an end to this BS soon!
Oct 24, 2011 7:01PM
avatar
Good job Reed Hastings CEO of Netflux.Sell all your stock options that were  given to you from the company. Ruin a great business,put your employees on the unemployment line, then quick before its to late, get yourself that multi- zillion dollarBaring teeth bonus. Then resign. YOU ARE NOW IN THE 1% CLUB.
Oct 24, 2011 6:59PM
avatar

Wow, Netflix, how  does  it feel to be stupid

 

Oct 24, 2011 2:51PM
avatar
Says Charlie this month may be the best for Dow since 1999 ?  GO FIGURE ?    GO BULLS  GO !!     BUY  BUY  BUY !!!!!!
Oct 24, 2011 5:59PM
avatar
OK..so CAT had a good 3rd qtr but there are plenty of other companies that aren't and yet the market reacts positively to just a little good news.  I guess the "investors" are reading how major companies including United Technologies, Danaher and others are budgeting money for "restructuring costs" which includes plant closings and layoffs.  This market has no discipline..just a bunch of 'manipulators" and "speculators" who are moving the market not on the financial strength and performance of a company but rather their ability to control vast sums of money to move the market up or down.

Oct 24, 2011 3:05PM
avatar
Record backlog, huh!   So when does Caterpillar start hiring?
Oct 24, 2011 6:34PM
avatar
At this point I'm not sure which one is the most f***d up company - Netflix or RIM.  The CEOs of both companies need to go.  Of course, they'll get to take millions of dollars with them as punishment for wrecking their respective companies, but that is apparently the American (Canadian in the case of RIM) way.
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