Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14
Sheffield Roma Crisis School Place Application's Fraud Perfect Storm - 17th Oct 14
Stock Markets, Commodities and Indicators - 17th Oct 14
“Save Our Swiss Gold ” - Game Changer For Gold? - 17th Oct 14
How to Trade the Ebola Stock Market Sell-Off - 17th Oct 14
When... Not if... Crude Oil Price Drops Below $70 - 17th Oct 14
Either You're The Butcher or You're The Cattle - 17th Oct 14
Gold Benefits from Market Uncertainty - 17th Oct 14
Stock Market Pullback Underway, Euro downside, Commodities - 17th Oct 14
Stock Market Seven Year Cycle and A Correction Ahead? - 17th Oct 14
Three Ways to Play Uranium: Top Stock Picks - 17th Oct 14
America Flirts With Deflation - 17th Oct 14
Why the Fed Should Consider Delaying the End of QE - 16th Oct 14
Gold Prices Since 9-11 - 16th Oct 14
The Inflation Imputation, Dear Saver, May You RIP - 16th Oct 14
Flight To Safety - Gold Rises As Stocks, European Bonds Sink - 16th Oct 14
The March Of History And The End Of Nations - 16th Oct 14
Stocks Bear Markets Move Fast and Are Intensely Emotional - 16th Oct 14
Stocks Got Their Piece – Now It’s Our Turn - 16th Oct 14
Why This Stock Market Selloff Is the Next "Buy the Dip" Opportunity in Stocks - 15th Oct 14
Possible Stock Market Runing Correction - 15th Oct 14
Get Your Tactics Ready for the Ebola Stock Market Event - 15th Oct 14
Secret Scheme To Manipulate Silver Price - Lawsuits Against Banks Proceed - 15th Oct 14
Stocks Bull Market Over? Trend Forecast to End Jan 2015 - Video - 15th Oct 14
Stock Market Dow The Contrarian Play - 15th Oct 14
The Ukraine, As We Know It, Is Gone Forever - 15th Oct 14
We Can Police the Dark Web / Bitcoin - 15th Oct 14
The Safest Stocks in the World - 14th Oct 14
Building an Ark: How to Protect Public Revenues From the Next Financial Meltdown - 14th Oct 14
9 Ways to Retire Rich - 14th Oct 14
Silver, Warfare and Welfare - 14th Oct 14
Swiss Gold Referendum “Propaganda War” Begins - 14th Oct 14
What Happened To The Fourth Estate? - 14th Oct 14
How To Blow Up OPEC In 3 Easy Steps - 14th Oct 14
Investment Myth - Wars are bullish/bearish for Stocks - 14th Oct 14
Powerful Reversal and Shakeout in the Junior Gold Mining Stocks at May Lows Around $33 - 13th Oct 14
When The Economy Went Ponzi - 13th Oct 14
Stock Markets Get Ugly – and May Be Getting Uglier - 13th Oct 14
Cycle Failures Point to a Stock Market Correction - 13th Oct 14
Bill Ackman: I'm not a Crybaby Shareholder - 13th Oct 14
U.S. and World Stock Markets Chartology - 13th Oct 14
Stock Market Intermediate Downtrend Confirmed - 13th Oct 14
Gold and Silver Price To Rally Or Not To Rally - 13th Oct 14
Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - 12th Oct 14
Has Obama Changed His Mind About Syria? - 12th Oct 14
New Zero Bound Only Game In Town - 12th Oct 14
The 5–Year U.S. Treasury Bond is Emblematic of Careless Risk Taking in Bond Markets - 12th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Netflix Share Price Crash on Loss of Subscribers

Companies / Tech Stocks Oct 26, 2011 - 06:38 AM GMT

By: EconMatters

Companies

Best Financial Markets Analysis ArticleShares of Netflix (NFLX) plummeted almost 35% to $77.37 in one day on Tue. Oct. 25 after reporting losing 800,000 U.S. subscribers in the third quarter, and predicting an unprofitable 2012 mostly due to its aggressive international expansion plan.  The magnitude of the share price drop caught option traders off guard even though the options market had priced in a 15% swing in either direction.


The company has been on a downward spiral unable to contain subscriber revolt in the past 3 months triggered by its customer infuriating 60% prices increase and splitting its DVD rental into a separate company called Kwikster.  The end result?  Hell has no fury like a Netflix customer scorned.....en masse.

Chart Source: WSJ.com, Oct. 25, 2011

The abrupt cancellation of the Kwikster spinoff on Oct. 10 turned out to be too little too late.  The company has lost $11 billion in market cap, and is now worth only 25% of what it was on July 13 when the stock was flying high at $298.73.  The chart below shows a reversal of fortune between the year-to-date stock performance of Netflix and Netflix competitor - Amazon (AMZN).  (Amazon's shares are also under pressure mostly due to its digital price war with Apple, but we don't see Amazon drop 75% in three months either.)

Chart Source: Yahoo Finance, Oct. 25, 2011

Netflix's abandonment issue is not just limited subscribers and investors.  According to Businessweek, at least five analysts downgraded Netflix on Tuesday, "citing lost management credibility and a dwindling subscriber base amid strong competition."  (EconMatters already downgraded Netflix as early as Nov. 2010, and again in January 2011, and October 2011)

This is a classic case of strategy execution blunders which could be detrimental to a company that has no differentiable products like Apple (AAPL) and Samsung, albeit with a mediocre business model, and has to rely on service quality and reputation.

Another sign of the over-confidence of Netflix management: The company, reportedly has been spending its cash on repurchasing shares at extreme values above $200, instead of preserving capital for rainy days.   Now the massive loss of subscribers has put Netflix cashflow under pressure, and may have become a source of concerns with at least one Netflix content partner as WSJ reported that

"DreamWorks Animation SKG CEO Jeffrey Katzenberg said in an interview Tuesday that he is "unequivocally" confident that Netflix will continue being able to keep paying for movies and television shows at its current rates."  It is not a good sign when a business partner has to tell reporters that he is confident about your ability to pay (so that his company stocks (DWA) won't get dragged down as well).  DreamWorks Animation recently struck an exclusive deal with Netflix worth about $30 million a picture replacing DreamWorks current deal with HBO, which expires in 2013. .

With its reputation and creditability threshed in just three months, there could already be conversations at the board of directors level regarding Reed Hastings staying on as the CEO, as Busienssweek reported,

"....Reed Hastings, responding to questions, said he has no plans to step down and declined to comment on discussions with Netflix directors."  

Its U.S. subscriber base was the ace in the hole for Netflix in getting deals from movie studios and to finance its international expansion. Now Businessweek quoted  Netflix projecting to add only up to 52,000 domestic streaming customers over the holiday period, while losing as many as 3.63 million high-margin DVD subscribers,

So ironically, Netflix may need to do some heavy marketing to earn back riled subscribers, which may involve hefty price cuts and incentives.  In any case, most indicators point to a suffering of near term profitability, and a long and lonely road back to the past glory.

For now, it seems most of the market bulls have leaned the lesson on Netlfix as WSJ notes,

".... Weekly put options to sell [Netflix] shares for prices like $70 also were active. Roughly 172,000 Netflix put options traded, versus roughly 177,000 calls."

Disclosure: No Positions

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.


© 2005-2014 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

Free Report - Financial Markets 2014