Netflix hurt by fleeing subscribers
The company lost more customers than expected after it announced pricing changes and a plan to split operations.
The number came in Monday, and it was big: 800,000.
That's how many subscribers Netflix (NFLX) lost in three months. And that's a big reason its shares were plummeting Tuesday even though the company posted a pretty decent quarter.
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Shares were down more than 35% in early trading to $76.21. The stock had closed up 1.5% Monday in anticipation of the company's quarterly earnings report.
The quarter itself wasn't bad. Netflix easily beat estimates on profit and revenue, earning $62.5 million, or $1.16 a share, on sales of $822 million. Analysts had expected a profit of 94 to 96 cents a share and sales of about $812 million.
But no one was looking at the top- and bottom-line numbers Monday afternoon. The big shockers were the forecasts for the current quarter and the higher-than-expected number of cancellations that Netflix says were caused by the "PR storm that engulfed our brand."
PR storm? Maybe. Or perhaps it was the double whammy of separating the streaming and DVD operations and raising the combined price for both services. At any rate, customers were furious and dropped more subscriptions than the company expected.
Netflix had 23.8 million U.S. subscribers at the end of September, down from 24.6 million three months earlier. Analysts had expected about 24 million subscribers -- about what Netflix projected in September.
And that's not the worst of it. Netflix thinks it will continue to bleed subscribers in the current quarter. It said its streaming customers could drop to 20 million (from 21.5 million) and its DVD subscribers could drop to 10.3 million to 11.3 million (from 13.9 million).
That means Netflix will likely miss the target of 24.9 million subscribers that analysts had expected for the current quarter.
So many subscribers canceled that Netflix said its revenue and profit for the current quarter will be lower than it had anticipated. Fourth-quarter profit was forecast at between $19 million to $37 million, or 36 to 70 cents a share, on revenue of as much as $875 million. Analysts had expected a much higher profit of $1.10 a share on revenue of $919 million, Bloomberg reported.
"We greatly upset many domestic Netflix members with our significant DVD-related pricing changes and, to a lesser degree, with the proposed and now cancelled rebranding of our DVD service," the company said in a letter to shareholders. "In doing so, we've hurt our hard-earned reputation and stalled our domestic growth."
Another potential red flag for investors: Netflix says that it has been "aggressively" increasing its spending on content and that spending next year will nearly double what the company has already spent this year. That will put Netflix almost at par with what HBO spends in the U.S., the company said.
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It's the same thing that happened to Bluckbuster in the early 2000's. Bluckbuster did not care about customers, overcharged them with late fees, treated them with no respect, until Netflix came along. Well...now netflix is doing the same thing. Think again Netflix....you just did the same mistake. Sometimes it's not only about the prices but how much you piss off your customers that counts.
I'm guessing the CEO will still get his big bonus? How he is not fired is beyond reason and makes one think the Board is just a puppet.
Last I heard, Webster's Dictionary was adding a new word for next year
Netflix /Net-fliks/ - vb. - to simultaneously and enrage your clients and destroy your company in one fell swoop.
Usage - Bob decided to netflix his startup business because he didn't want to deal with all the paperwork and hassle of filing taxes.
The arrogance of Netflix when they announced price increases was despicable. They basically came out and said yeah we expect to lose some subscribers but hey we don't care we are going to do this anyway. I am so glad to finally see consumers bucking up and standing their ground. It almost sickens me to have a salesperson or a company have the attitude that if you don't want it somebody else will. WAY TO GO (former) Netflix subscribers.
............and THAT is how purchasing power weeds out those who believe that they are in control of the market!
Hopefully a lesson learned by corporate America.
Some day. Some one will offer what I want. I want a alacart choice.
I have 150 channels of crap I never watch and have to pay extra for the ones I do.
Give me a choice of fifty channels I want and only the ones I want and dont charge me a arm and a leg for it.
I will pay $39.99 a month and be happy and never leave.
The CEO will get millions of dollars for screwing up a company that was doing all right and turned it into a losing one he probably will fire a few thousands of workers so he can save money and get a bigger bonus.
As my name indicates - I am one of the FORMER customers of Netflix. I joined in 2004 and had a pretty good business relationship with the company. Last December they increased the price I was paying by 20%. No explanation & when I called and spoke with someone I got the "...it's for upgrades & you'll have better service..." storyline. Less than six months later they want to increase the price another 40% - ON TOP of the previous increase. In this economy with people out of work, you'd think that price stability would be the order of the day. NOPE - Netflix cut it's own greedy throat & well, it seems that the old saying is true...What goes around is coming around & boy is it coming around. They burned their customer base & I wouldn't go back to them even with the offer of a year's free service. The bond of trust we had is BROKEN and can't be fixed - unlike Netflix - I CAN'T BE HAD AT ANY PRICE.
I wish I was as simple minded as some people who rationalize this as " it's not that much money". True, I won't be checking into the poor house for 15 dollars a month, but unfortunately I learned to read and use a calculator. They have 23.8 million subscibers....hmm lowest subscription is $8........that is over 190 million dollars a month for a service that is all but automated. Other sites are free just from a few corporate sponserships........ That is the only reason $8 dollars was even permissable, for convenience purposes and to eliminate commercials. Now you big corporate Fat Cats try to tell the consumers, " oh poor me, we can barely turn a profit, we need to DOUBLE the price just to stay a float." I am sorry but if you can't turn a profit and still provide good service with 2 BILLION dollars a year, you sure as hell don't deserve another penny from me because your obviously greedy or simply don't know how to run a buisness.
- That's exactly the WAY TO TEACH CORPORATIONS A LESSON.
We should do it more frequently.
How does THAT feel, you arrogant bastards? That is what you GET for insulting your customers again and again while increasing your fees and cutting services.
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