« Netflix Q3 2011 Global Results: 25.28 Million Subscribers & $822 Million in Revenue | Main | Netflix Rolling Out Just For Kids User Interface to Devices »

Comments

Evan

Netflix is quickly losing customers, which at this point is their only distinguishing asset. They also acknowledged that they no longer have the capital necessary to bootstrap expansion after the U.K. I think they're in a death spiral.

Fred Talmadge

Wall Street overvalues anything that is "hot" Now that Netflix is mainstream with no short term growth they devalue it. Or in my opinion value the company at a more reasonable number.

AppleV

I see a massive knee-jerk reaction. Yeah the changes went a little fast, without enough explanation, but if you really research what is going on, the company is still expanding its movie/show collection, the streaming is only getting better and better, and the DVD service still caters to people who want newer movies (just-released streaming movies and tv cannot be inexpensive to acquire!) on the cheap as well as those in areas without high speed data. I strongly believe that once the media frenzy has died down, the stock will settle out and start its rise again.

Robert Emmerich

nf price is $77, Amazon is 3x as much at $228.
nf market cap is $4B, Amazon is 26x at $104B.

I don't know what that disparity means (except AMZ has way more shares outstanding), but I think Amazon could buy nf if it wanted to. Despite all the issues, actually using nf is still so much better than Amazon Prime, plus it's on practically every electronics device known to man. I remember mocking BB's really bad website when BBO started, but that was still way better than Prime. Amazon could drop Prime subscriptions, keep it's per episode/movie rental/purchase business, and buy nf. I haven't even used "Just for Kids" yet but it's gotta beat Prime.

Russell Brazil

NFLX now has a p/e of about 17 after this drop. It was trading at ridiculous multiples over the past couple years that were not justifiable given its growth prospects. Netflix has also given us many negative forward looking earnings statements, and they expect to have several quarters of operating at a loss. Combine that with the rising cost of media aquisition, and I believe that the current stock price is likely still to go much lower. Netflix had a good run, but the party is over for this stock.

Shanshu73

it a great service. much better than blockbuster. i had a big problem with blockbuster on demand over the weekend and will not be using them anytime soon. love netflix.

GeeEmm

No, I don't think Wall Street is being too hard on NF. It's just the way of the market.

I also don't think this is the end of Netflix. But this is a rude awakening for those in charge who felt the company was golden, untouchable.

NF is paying for its arrogance, its greed, and its 'meh, so what' disconnect from its user base. And when I refer to greed, I'm not suggesting that NF (or any other company) should never raise prices. Fees/costs must be adjusted from time to time, and consumers must be willing to adjust as well. But 60% in one fell swoop? On top of continuing functionality/reliability/quality issues? There's no way to justify that.

Time will tell if that rude awakening will also serve as a true wake-up call.

Jack

Netflix was running hot the last few years with a growing subscriber base and dwindling competition. Things have changed though with other competitors entering the market (iTunes, Amazon, etc). Whether you agreed with the price hike or split to Quikster or not, Netflix is in a public relations nightmare and I think investors are questioning the leadership at a company that has upset so many of its loyal customers. With the company seemingly so out of touch with what its customers want,it's little wonder that Netflix's star is in decline while others' are on the rise.
Personally I think the stock price could stand to fall a little further. The team at Netflix seems to think that they're doing a great job, customers have tried telling the differently but that seems to have fallen on deaf ears. Perhaps they'll be more receptive to what the market has to say.

Mike D

>Investors have punished Netflix for the price increase

I disagree. Investors are punishing Netflix for changing stuff all the time. Streaming rights, fee schedules, the list of services they offer. Customers don't know which Netflix they'll get when wake up the next day. That uncertainty has translated into investor uncertainty.

moviegeek

To add to Robert Emmerich's post:
Amazon has a P/E of 100 and Netflix is 20, IMO Amazon is overvalued. Amazon EPS is $2.27 and Netflix is $3.94, again Amazon has too many shares which dilutes the pps.

I think NFLX $77 pps is a fair price, I would wait till next quarter's earnings before buying though.


Socinus

Something that bugs me about the online discussion of the recent Netflix changes, especially in the context of "greed" and "arrogance" is a genuine lack of curiosity on the part of posters. Take for example GeeEmm above, stating that they can see no reason for a 60% increase in fees.

First I refer you to an article linked here in the past: http://money.cnn.com/2011/07/08/technology/netflix_starz_contract/index.htm

When Netflix added streaming they did so without any associated rate increase, as at the time there was little content and what there was they were able to purchase cheap. Assuming that the 7.99 for dvd is accurate to costs (which at somewhere between $.80 and $.84 cents I think it is) that means that if all users were on the 9.99 plan, they paid about $480 million for the streaming content acquisition costs. Costs which are not like disc inventory and do not generally provide a static value. compared to the projected costs of streaming acquisition costs, a jump of 60% is pretty small for what a company COULD charge.

A better way to look at this jump is not that Netflix is greedy or arrogant or anything like that, but rather consider they held off raising rates that should have increased years ago until the point where the product was mature enough to merit a charge as a stand alone service. 2 years ago streaming would not have been a reasonable product separate from the DVDs because the number of devices to play it and the number of titles were small. Charging customers a higher rate in keeping with the actual cost of the service would ring hollow to users and netflix instead chose to lose overall profitability in favor of improving the product to a mature level before increasing rates to represent the actual value. As consumers this should be what we want- pay for the mature product, not a beta version. The outcry about the 60% increase (a figure that is misleading, as plans changed to wildly different percentages +/-) is more that people had something they knew all along was cheaper than it should be, and when they got charged it's actual value they think it is the end of the world.

As for the stock price . .. well, anyone who actually thinks that stock market fluctuations are indicative of a company's impending failure haven't look at Netflix's past.

Seth

"Do you think Wall Street is being too hard on Netflix?"

As other posters commented, Netflix has always been absurdly overvalued. So unless it was unfair to overprice Netflix it isn't any more or less fair to punish it for recent mistakes.

I agree with Jack that Netflix has always been tone deaf to customers. While the media thinks this is a "recent" phenomenon, everyone who posts here knows it's not. The Netflix management has always been able to get away with saying "Oh those complainers are just a small minority of customers blah blah blah" but really their most knowledgeable and dedicated customers were giving them warning signs time and time again about their brusque way of doing things.

It was only a matter of time until they managed to piss off a large segment of their customer base and indeed they surely did.

I have been carefully reading the interviews with Reed Hastings the past few weeks and IMHO he STILL does not get it. They need someone new at the helm.

paul

In the past few months, Netflix has gone from having millions of enthusiastic supporters to having millions of customers. Its not the numbers that matter, but the change from being a company that people were excited about and proud to recommend, to being a company that people use because there isn't really any meaningful competition in that market segment.

Without the goodwill of its customers, Netflix will get fewer word-of-mouth referrals and more cases of people considering Netflix but being warned to steer clear by those who have used the service. It will also be more succeptible to competition if amazon continues to expand its streaming offerings, if Blockbuster starts to offer streaming to those without satellite dish subscriptions, etc.

Netflix is a massively less valuable company now than it was several months ago because it lost the goodwill of its customers and because it continues to have a CEO who does not believe that the goodwill of customers is important.

GeeEmm

Socinus,

Your comments represent a fair opinion in assessing the evolution of what has happened, and I especially agree with this succinct observation:

"As consumers this should be what we want- pay for the mature product, not a beta version."

I must, however, stand by my original opinion. The rate hike - which I have never complained of in and of itself, but rather always in context of the services/improvements provided vs. the fees charged - was, under the prevailing circumstances, far too steep. Notice, I did not say that a hike of some sort was not warranted at all.

NF did, indeed, display arrogance and greed (there are many manifestations of greed, not just the financial one, and NF was impatient to expand its international presence, especially since Amazon has come strongly on the scene by acquiring LoveFilms) by delivering a rapid-fire series of unpopular, poorly conceived, and and hastily introduced, changes without addressing a variety of valid user concerns and requests. It is questionable whether NF bothered to use any test/focus groups, or to poll a random percentage of real users, before making some very risky decisions.

NF doesn't - and shouldn't - have to bend to every whim of its subscribers. But to alienate a substantial number of them was quite obviously a devastating move. There was a happy medium to be found, but NF did not seem interested in looking for it.

Perhaps one of the biggest missteps that NF made was in the area of content acquisitions. Was it wise to fork over millions and millions and millions per movie (or series or episode, etc.) based on the strength of its highly inflated stock prices?

"It’s the big-media companies which have the pricing power here, and now that Netflix has set eye-watering precedents for things like DreamWorks Animation and House of Cards, it’s going to find it difficult to pay more reasonable rates going forwards."
http://www.reuters.com/article/2011/10/25/idUS119373297520111025

Not that studios don't deserve to make a nice fat profit from DVD and streaming rights - but things are getting way out of hand on both sides of the acquisition equation. The pricier it gets, the more affect on the consumer. And there's a limit to how much of an ever-inflated cost the consumer will ultimately be willing, or able, to bear.

A 60% jump in cost of any service or product is certain to be controversial, and quite possibly dubious.

rjm

NFLX stock was a bubble waiting to burst.

Now its burst.

Doesnt mean they cant & wont be profitable for many years to come.

Just that the marketcap didnt have room for a single mistake or misstep.

Mrmanmac

Netflix is still a great company with a great product at a very reasonable price. I think an opportunity has presented itself for those of us that are unwilling to follow the sheep on Wall Street, and the bullshit headlines they throw out there to influence stock prices. Do your own research people. There is NO competion if you compare Apples to Apples. Netflix is still the best streaming experience out there, and the best place to rent DVD's. Blockbuster is salivating hoping this media frenzy will put netflix out of business, so they can rape, pillage and do all the things Wall Street expects companies to do to their customers.

eviltimes

NFLX might be at or near its bottom right now at $77.20 in after hours trading. I'm seriously thinking about getting 100 shares. Watching it very closely now. There is a chance it could fall into the 50's if the NASDAQ itself pulls it down, which is why I am waiting. But this company will climb out and up fast once it bottoms. The majority of customers lost and those who downgraded their service is virtually over, as this month everyone got their new bills. So aside from that they are spending heavily on streaming expansion, adding one country after another. I'd say by the end of Q1 12 the streaming side will really become profitable - meanwhile the DVD side is extremely profitable. NF is going to make some people some real money.

lca

"...Netflix is a massively less valuable company now than it was several months ago because it lost the goodwill of its customers and because it continues to have a CEO who does not believe that the goodwill of customers is important."

I didn't quote the whole post but how is it possible that all of this happened in a couple months, that people aren't excited about netlfix anymore? I don't get why people insist on treating Netflix the company or Reed Hastings so personally.

This is just silly. When the price went up, I asked myself if I watched DVDs enough to keep. It turns out that my last few dvds sat at my hour for weeks, so I killed DVDs. When I first started Netflix, I was burning through multiple DVDs per week on the 3 out plan. And, switched to the 1 out plan when I started trimming expenses.

I don't think Reed's arrogant because he raised prices. It's what businesses do. And for anyone that opted not to keep both DVDs and Streaming, their price went down.

If nothing else maybe the price increase made some customers realize there weren't actually using either DVDs or streaming enough to stay. I guess we'll have to wait and see.

Missouri

Wait...continued streaming outages, more than doubling prices, spinning off their DVD business, a new offering from Dish and Hastings offering half-assed apologies to customers?

Tell me again - why would the stock plummet?

mrmanmac

They lost 3 percent (Hardly a mass exodus) of their customers, over a way overblown price increase. Considering most of the population have no mind of their own and are easily swayed by the media I am surprised it wasn't more than that.

60% was a worst case scenario, and in real dollars it was all of $6. for a service that had been largely free for all of us that originally signed up for DVD's. What we are seeing here is big media, using the media to villify Netflix, and Reed Hastings trying to make them sound like a greedy faceless corporation that does not give a damn about their customers all the while maintaining the status quo. I think Netflix is the greatest thing since sliced bread. Watch what I want when I want??? Why...... THAT IS OUTRAGEOUS!!! OFF WITH THEIR HEADS!

Seth

"They lost 3 percent (Hardly a mass exodus)"

Um, yeah, 3 percent is a massive loss of customers. Especially when it is so closely tied to recent strategic changes in how the company operates.

Jon

"What we are seeing here is big media, using the media to villify Netlix".

No, what we saw was customers taking a stand against a CEO who thinks of all its members will follow him like sheep. The media reported on all the customers who posted on the Internet. The past few months the NF cheerleaders have said quit whining about the price increase AND the split. Well the people have spoken and got NF to change their position on the split (Qwikster).

Regarding "they lost 3% (hardly a mass exodus) of their customers".
Netflix lost allot more than 800,000 customers. In the 2nd quarter of this year, NF added 1.8 million new domestic subscribers (source: NF investors page). So if you look at the number of NEW customers that didn't sign-up this 3rd quarter (especially with all the advertising NF has been doing) because of the bad press reporting on the "whiners", you can easily calculate they lost allot more customers.
NF reputation has been damaged, Hastings has acknowledge this fact.

What do many people do before deciding on purchasing a product? They use the Internet. The same Internet that the NF "whiners" posted their disgust on about NF.

Lonny

The way I see it.... 3 percent is probably pretty close to the normal churn in terms of percentage. I agree that it seems much worse because they did not make up for the defections like they had in the past, and that is exactly what I am referring to when it comes to negative press, and people being sheep. People leave netflix all the time for various reasons, not all of them being the fault of Netflix. For some it is the lack of NEW releases, some because of closed captioning, some because they never use it, and a few because in their eyes Netflix Sucks! To each is own.

But if you are a potential Netflix customer, and your research leads you to nothing but negative headlines, and a possible better deal somewhere else, I am sure that has had an effect.

Lonny

I forgot to mention the people that leave because they can't get it to work right. Anyone with a DSL connection and communicating wirelessly is going to have issues.

The comments to this entry are closed.

Sponsors

Third-Party Netflix Sites