Netflix’s Stock Plummets After Company Warns Of More Subscriber Losses

Posted Oct 25, 2011

The stock price of Netflix, Inc. (NASDAQ:NFLX) has plummeted about 34% in heavy trading today. This is one day after the company announced a loss of over 800,000 subscribers. The company is also expecting to lose many more subscribers after adjustments to the new separation of DVDs and streaming services model. The stock price is trading at about $78.01 as of the time I am writing this article. Yesterday, the company’s stock was trading at about $93.30. In July, the company’s stock was at $300. Since July, Netflix has lost a market value of about $9.76 billion.

J.P. Morgan downgraded Netflix’s stock from “neutral” to “overweight.” They slashed their price target for Netflix to $67 from $205. Citigroup downgraded Netflix’s stock to “neutral.” In a letter to investors, Netflix CEO Reed Hastings wrote:

We think that $7.99 for unlimited streaming and $7.99 for unlimited DVD are both very aggressive low prices, relative to competition and to the value of the services, and they are the right place for Netflix to be in the long term. What we misjudged was how quickly to move there. We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content and steady DVD costs, so that absent that explanation, many perceived us as greedy. Finally, we announced and then retracted a separate brand for DVD. While this branding incident further dented our reputation, and caused a temporary cancellation surge, compared to our price change its impact was relatively minor. Our primary issue is many of our long-term members felt shocked by the pricing changes, and more of them have expressed that by canceling Netflix than we expected.

He also added:

Investors and members will be relieved to know we are done with pricing changes, and that at $7.99 each for streaming and DVD we can move forward for a long time.