Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Netflix: What Not To Wear At The High Stake Tech Party

Companies / Tech Stocks Oct 10, 2011 - 02:03 AM GMT

By: EconMatters

Companies

 

Best Financial Markets Analysis ArticleThe stock price of Netflix Inc. (NFLX) has plunged 61% to its lowest level since the high of $298.70 reached on July 13 from a myriad of reasons. (See Chart Below)


Chart Source: Yahoo Finance


First, there was this separating streaming from DVD in July with the untimely hiking its subscription prices by as much as 60%+, in the middle of a 9%+ U.S. unemployment rate, diminishing middle class income, and mounting worries of a global double dip recession.  The resulted backlash from customers has been significant enough that in mid September, the company cut its third-quarter forecast by 1 million U.S. subscribers, sending its shares down nearly 19% on the day.

Netflix tried to salvage the situation via a blog post by its CEO and Co-founder Reed Hastings openly apologizing that "I messed up and owe everyone an explanation".  However, the so-called apology blog lacks substance, and the damage has already done.  According to Reuters,

"Subscribers didn’t shy away from letting Hastings hear their displeasure, weighing in on the company’s blog with over 15,200 comments, the bulk of them overwhelmingly negative."  

We think to some Netflix subscribers, the separation of DVD and streaming, and the rate increase are somewhat (barely) tolerable considering none of the others like Blockbusters or Amazon can match Netflix streaming content library at the moment.  However, even with that advantage over rival services, Netflix streaming library still pales in comparison to the DVD selections, as many popular (new and classic) movies are only available in the disc format.

Blockbusters, meanwhile, boasts a similarly vast DVD library with movie studio deals to get many new DVD releases 28 days before Netflix to boot.  So until Netflix's streaming library comes close to the depth of DVD's, it is presumptuous as well as arrogant on the part of Netflix management to think customers would automatically flock to the streaming service of Netflix simply due to its new pricing structure.  

Then the last straw came when Netflix decided to spin off the DVD business into a separate company called Quikster, which means subscribers will need to manage their queues on two different web sties, and two separate monthly bills.  This not only further infuriated Netflix subscribers, also left analysts at a loss.  We get the symbolic significance of setting the company apart from the brick and mortar DVD operation.  Nevertheless, we fail to see a real business case of a DVD unit operating under a different name and web site that'd serve only to further alienate the current DVD subscriber base of about 14 million.

This "Quikster move" not only seems to suggest a message that Netflix does not value DVD customers, but also looks like at least in part another concerted effort by Netflix to "encourage" customers to the streaming service where the company sees as the future.

From a strategy execution standpoint, there are many other much more subtle marketing, promotional and phased-in price increase tactics to achieve the same goal of migrating subscribers without looking like a bully.  In the end, that kind of strong-arm "migration" approach would only lead to more subscriber losses while giving Blockbusters the perfect opportunity to have its "revenge campaign" after basically being driven into bankruptcy by Netflix.

Moreover, we also believe Netflix appears to have overestimated its branding power and customer loyalty.  After all, Netflix is no Apple which has carved out a niche within the consumer digital products sector with high branding and an ecosystem to foster customer loyalty or just for the hip factor.

But the entertainment content business is fairly generic, where consumers essentially look for the best service and price combination.  Netflix used to be the leader in that combo of service and pricing, but it has now lost that differentiation which has made the company successful in the first place, and it'd be just a matter of time before Amazon, Microsoft, or Apple (AAPL) would come up with a superior offer to completely replace Netflix.

Last but not least, there are multiple headwinds from increasing costs and rivals suggesting this is not yet the end of the stock price tumble.

On the cost structure side, Netflix is under pressure from Hollywood studios and pay-TV rivals, not to mention cable companies no doubt are looking to end Netlix free ride on their high-capital-cost broadband network.

On the competitive front, rivals Amazon.com (AMZN) and Microsoft Corp. (MSFT) have already unveiled competing products.  Amazon has its own video stream service to work with its new Kindle Fire tablet, while Microsoft plans to offer online pay television service from Comcast Corp. (CMCSA) and Verizon  (VZ) through its Xbox Live streaming service.

The hottest speculation right now is that by launching Kindle Fire, Amazon looks set to acquire Netflix.  If a deal could be reached for Amazon to acquire Netflix, Amazon would instantly become the sector's leader, and Netflix stocks could get a bump as a result.  Otherwise, there do not seem to be many near term catalysts to bring Netflix stock back into swing of things.

In the past year or so, we have repeatedly warned investors, even when the stock was killing all the shorts and seemingly unstoppable, to take profits off the table when possible, and identified Netflix as one of the five stocks due for a pullback in 2011.  And this recent bungle and arrogance of Netflix, as discussed herein,  has also left us to question the company executive's leadership and management capability.

So the bottom line is that we have not seen much to alter our view that Netflix is a pure momentum stock with a not-so-differentiable business model in the über competitive tech and digital entertainment sector.  When the stock momentum is lost like it is now, look out below.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2011 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in