Netflix shares take another fall

The stock is downgraded to 'underperform' by a prominent analyst who says the company is broken.

By Kim Peterson Nov 30, 2011 3:55PM
Updated 4:35 p.m. ET

On a day when stocks soared, Netflix's (NFLX) drop was particularly jarring.

The stock just can't catch a break after passing $300 in July. Its plunge since then has been breathtaking, with shares closing at $64.53 Wednesday.

The day's fall was triggered largely by a downgrade from one of the more prominent analysts covering the stock. Michael Pachter of Wedbush Morgan said in a research note to investors that the company is broken.

Post continues below.
Pachter criticized the way Netflix hiked prices for subscribers in July -- the beginning of the stock's long slide. Customers who had signed up for one DVD out at a time plus online streaming saw prices jump by nearly 60%, a move that showed Netflix was truly out of touch with customers.

"It is clear that a price increase was necessary, and equally clear in hindsight that a 60% increase on the hybrid customer was too much," Pachter wrote. Yes, the company would have seen customer defections and trade-downs at any price point, he added, but the carnage would have been milder if the price increases had been smaller.

Pachter cut his rating to "underperform" from "neutral" and has a $45 price target on the stock. Wow, who ever would have thought $45 was in the realm of possibility for this former highflier?

Here's more from Pachter's note:
We are particularly concerned by the company’s "growth at all costs" business model. Netflix management is willing to incur losses for all of 2012 in order to chase international expansion; we think that international subscribers will generate losses for the foreseeable future at a time when the company has alienated its most profitable domestic customers with its sharp price increases, further challenging its profitability.

Tags: NFLX
50Comments
Nov 30, 2011 4:50PM
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It is a real shame that Netflix has done this - I found their customer service far outshined Blockbusters and if a movie was at the top of a queue and not sent within 2 orders, you got that as an extra movie.  I had movies at the top of Blockbuster forever and complaining did nothing.  I have gone from 3 movies at a time to 2 and kept my streaming to keep the price the same.  I really hope Netflix can get its act together.  For service and dependabiltiy it is in a class of its own - it is too bad greed is destroying all that.
Nov 30, 2011 6:54PM
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To all those defending Netflix, their is a difference between being a profitable company and being a greedy company.  That's something many companies need to relearn.  One clear sign of a company that has moved from profitability to greed is when they do what companies like Netflix and BOA did...give a big ole F-You to their customers.  It seems to be the policy of corporate America that no amount of profit is enough...you have to wring more and more out of your workers and your customers, screw them both in order to get more and more money for shareholders and CEO salaries.  Then they are surprised when regular people turn on them.  I feel for workers at Netflix, but what can you say.  This company is suffering the consequences of their actions....plain and simple.
Nov 30, 2011 5:09PM
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HA HA HA.  For many, including myself, the defection from Netlfix had less to do with the price increase than with the utter arrogance with which it was presented by their CEO. I had been a Netflix customer for 12 years and was happy with their service.  To be told I would experience another price increase 6 months after the last one  was difficult.  To be told that my defection was expected and no big deal to the company led me to walk away.  I would have grumbled some at the increase but would not have gone had it not been for the take it or screw you attitude.  I'm surprised Hastings still has a job. 

They didn't realize the power of social media and how it can work to band people of all sorts together toward a common cause.  To find so many others as angry and as willing as I was to downgrade or leave Netflix altogether helped me to keep my resolve to take my business elsewhere where it might be more appreciated.  I hope other companies take note of what has happened to Netflix and understand that price increases, when all of us are struggling, can be understood, however, nasty, less than appreciative attitudes towards customers will not be and in highly competitive markets don't have to be. 

 

Nov 30, 2011 6:00PM
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A fine example corporate greed!!!....that's what's wrong with the country...can't be satisfied with making a living...have to make a killing.

It's nice to see some of them crash and burn...CEO should be fired with out his golden parachute.

Nov 30, 2011 6:44PM
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When I threatened to cancel Netflix after they doubled their rates for both dvd and streaming, reps actually laughed at me.  I told them that Incredible Universe, Barney's coffee, and Circuit City also believed they were untouchable but look what happened.

 

Corporate greed can truly turn its ugly head; Netflix, stop the greed and give back value to its consumers and stocks will rise again.

 

Or on the way down, say hi to another arrogant greedy video company - Blockbuster, now called Bleakbuster.

Nov 30, 2011 5:47PM
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Asoyusaa-

 

People have already mentioned that you are dead wrong.  Neflix didn't reverse the price.  The problem, as the story states, is not that they raised prices necessarily (it was a necessity), it instead was how they raised the fees, with little to no care for the consumers and out of touch with the population.  I loved netflix, but at a 60% increase in the price point, they all but required people to choose between dvd or streaming.  The best business model was that netflix offered the best of both worlds, and then took that away from customers, while increasing their prices at the same time. Bad business move.  They followed that up with a half-**** apology which turned even more customers off.  If the price hike didn't scare you off, the inability to figure out the future of the company might have.

Nov 30, 2011 4:19PM
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Netflix has become Blockbuster. It is not only the 60% price increase and the split between the DVD and streaming services that have alienated customers. Issues with the interface, a terrible selection of streaming content, embargoed releases of new movies with long waits for new DVDs once they are released, and the list goes on. Netflix's response to concerned customers has been, "go away, we don't need your business." This was actually posted on the Netflix blog! It doesn't take any special insights to see why Netflix is losing business -- they have driven customers away.

I left Netflix and am using Amazon Prime. The free streaming library seems as good as Netflix and I don't wait months to get new titles!

Nov 30, 2011 6:10PM
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Netflix has no respect for their customers. Pure greed. That's what you deserve. Go join Blockbuster's morons.
Nov 30, 2011 6:49PM
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I cancelled when they raised the price...I will never go back
Nov 30, 2011 5:57PM
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Another perfect example of CORPORATE GREED. Netflix set up such affordable memberships in the beginning as a sure measure to help WIPEOUT the competition - Blockbuster, Hollywood, etc.  Once the competition had been eliminated, I believe they assumed it was excellent timing for their premeditated steep hike in pricing.  Afterall, their established customer base had limited places to turn. I read that Reed Hastings, one of the founders, was discontent with having to pay late fees for traditional movie rentals.  If Reed's motivation to walk away was fueled by mere late fees, what makes him think his customers would tolerate Netflix's irrational price hike?
Nov 30, 2011 6:15PM
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We are with dishnet on the HD platium pacakge and just received blockbuster streaming and mailing for free. They advertise it as blockbuster pass which gives you unlimited streaming 1 mailer per month and an additional 20 channels mostly HD. Basically, Dishnet and Blockbuster are going after Netflix, payback is a real b........
Nov 30, 2011 4:39PM
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Their fault...greed does that...so now you're losing all that money and, I would bet, having to let a lot of people go...how many are jobless, now?

 

Too bad...I was a happy customer until you got greedy...

 

Way to go Netflix...

Nov 30, 2011 6:11PM
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use me and abuse me; they keep prices down long enough to hurt there competition ,then suddenly prices 'just Had to go up' they found out people did have other options. 
Nov 30, 2011 5:41PM
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They become too avaricious for their own good - good riddance. I cancelled them months ago. I agree with Someone - anyone who thinks they are the monopoly and cannot be eliminated is wrong. The recession has changed the rules. Lehman Brothers survived the depression but did not survive this "recession". The business landscape has changed and consumers have had to make tough choices without income and jobs, Conspicuous spending is passe now, and only the extremely wealthy and dimwitted - oftentimes the same people, still spend money as an unlimited resource,  Good bye Netflix, BOA, and yes, hopefully, Facebook, the bastion for the idle and socially-inept.  When you increase the price by 60%, do not expect customers to keep still and take it.
Nov 30, 2011 5:35PM
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@asoyusaa they definitely did NOT reverse the fees. In fact in their "apology" e-mail the CEO said how necessary the price increase was. Again, most people weren't angered by the price hike, I wasn't a fan but I understood, but then the CEO sent out this high-horse heavy-handed letter about how necessary this was because he didn't want Netflix to be like Border's Books or AOL. So the Netflix members helped them get there via leaving. It's not the fees for many, it was the attitude behind them.
Nov 30, 2011 4:28PM
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The stock can't catch a break? I can't catch a break! I tried to use netflix on the holiday weekend (the streaming) and the selection was pathetic.

I am examining the Amazon Prime service. I had a hard time finding something to watch on Netflix- it was a mishmash of old, old movies and kiddie shows.

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obviously, this will be a lesson taught to college grads that think they know how to run a business and to the owners of business's that disregard common sense and customer loyalty.

their problem for them now is "how to recover" from their summer time extortion.

first suggestion is to fire the ones who thought of the faulty idea.   the public likes to see blood and loyalty in return

Nov 30, 2011 8:17PM
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It was not the price increase that turned me away from Netflix, it was their attitude, like the customer didn't have a choice.  In other words, they tried to shove it down our throats.  That made me very angry and determined to prove them wrong.  I never dreamed as many other folks would abandon Netflix.  Customer loyality is great for a business, actually critical.  Destroy that loyality and you destroy your customer base.  Good riddance Netflix, I think your days are numbered.  "Talk about shooting yourself in the foot!"
Nov 30, 2011 4:46PM
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I've been with Netflix for years- it isn't the price that's making me leave.  Like some others are posting, I'm tired of their pathetic selection of streaming movies.  I never used the DVD rental part of my subscription anyway, so had no problem just downgrading to streaming only.  However- I've found that I prefer Hulu- which has a much better selection of television series (I do not waste cash on cable) and they are available for the current seasons.  And Hulu plus is the same price as Netflix.
Nov 30, 2011 5:20PM
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Next up will be AT&T, DirectTV, and BofA. And farther down the road: Facebook.
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