Maybe you don't hate Netflix after all

The company flunked out of a recent consumer popularity contest -- and that's a good thing.

By Motley Fool Pick of the Day Apr 5, 2012 4:38PM

By Rick Aristotle Munarriz

 

After a year of embarrassing flops, Netflix (NFLX) was going to have to take its lumps.

 

CEO Reed Hastings bubbled up near the top of many "Worst CEO of 2011" lists, and given the beating that the stock took from its all-time peak in July to its bottoming out a couple months later, some of the knocks were earned.

 

However, we now see how far Netflix has bounced back in such a short amount of time. Consumerist.com concluded its annual contest for the Worst Company in America this week and Electronic Arts (EA) -- the video game giant that has earned the ire of some for its life-sucking buyouts of smaller developers and its penchant for adding incremental purchases into its commercial releases -- took the top honors.

 

Netflix, fittingly enough, made the cut as one of the 32 finalists. However, consumers have warmed up to the video service giant to the point where it got eliminated from contention in the very first round.

 

You like me -- you really like me
Netflix was pitted against GameStop (GME) in the first round of this year's voting-based contest.

 

GameStop is an odd nominee. Why is GameStop so vile? Yes, it sells new games at retail prices, but it has a loyalty shopping program that makes it compelling to do exactly that. It pays a pittance on trade-ins that it then resells at juicy markups, but why is that so terrible?

 

We live in a capitalistic society. If someone could put GameStop out of business by offering lower prices and better trade-in terms, why hasn't that happened? No one forces die-hard gamers to buy their titles and gear at GameStop.

 

GameStop isn't vile. Surely it was being placed in this battle so that the evil empire of Netflix would move on to the second of five rounds.

Well, the Consumerist.com readers didn't see it that way. GameStop collected a little more than 70% of the votes. It wasn't even close. Many of the reader comments pointed out that while the summertime price increase and short-lived Qwikster fiasco were bad business moves, it didn't mean that Netflix was a company for consumers to loathe. Netflix's quick reversal on Qwikster even won some raves.

 

"GameStop is just bad in so many categories," one voter wrote. "Netflix at least has listened to customers and changed their mind about things."

 

On to the next round
GameStop, if you're curious, went on to lose to Wal-Mart (WMT) in the second round of the tourney.

 

Wal-Mart? Yes, it was definitely a peculiar slate of nominees. GameStop is evil because it charges too much, and Wal-Mart is vile because of how far it will go to make sure that it charges customers too little. Go figure.

 

However, back to Netflix, if it's not as loathed by consumers as GameStop -- or Wal-Mart, for that matter -- could it be that it has overcome last year's blunders and poorly executed initiatives?

 

Nod your head if you want to give the correct answer.

 

The mathematics of an apology accepted
Consumers, subscribers, and shareholders have all forgiven Netflix. Pull up a stock quote. The same stock that traded as low as $62.37 five months ago is trading nearly 80% higher today.

 

Pull up its latest quarterly report. After a sharp slide during the third quarter, it tacked on net new streaming customers during the fourth quarter. Yes, DVD-based customers continue to decline, but that's not Netflix's platform for growth these days.

 

Is the company as respected as it was a year ago? Probably not. It may have a record number of total subscribers right now, but its once-sterling reputation did take a few body blows that may be slow to heal.

 

However, at the end of the day it's hard to argue against simple math. The stock chart, quarterly financials, and now the Consumerist.com poll show that Netflix's apology has been accepted.

 

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. The Motley Fool owns shares of GameStop and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Netflix. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended writing covered calls on GameStop. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

 

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