Netflix Takes Another Hit

[Fezmid]

Not when Netflix themselves are predicting losing even more subscribers over the next few months.

 

76.58 -42.26 (-35.56%) 8:53AM EDT

 

That's the line of a classic over-reaction and I'd liken it to when BP had the oil spill in the Gulf and lost 50% of it's value practically overnight.

 

But time will tell.

[Fan in Chicago]

76.58 -42.26 (-35.56%) 8:53AM EDT

 

That's the line of a classic over-reaction and I'd liken it to when BP had the oil spill in the Gulf and lost 50% of it's value practically overnight.

 

But time will tell.

Perhaps the amount of the stock drop is an over-reaction. However, note that the crux of Netflix's business is the number of active subscribers. Lifetime value of each is quite big and hence a 800K drop is significant considering the amount of money they are having to pay to gain content. Just for kicks and with lot of assumptions, subscriber revenue change = $12/month * 12 months/yr * 5 year subscription life * 800,000 = $ 576 million over five years or $115 million /yr. Much of that is net income.

Finally, the market does not know the curve of the drop offs - are the defections increasing ? Steady drop ? Pricing the revenue hit and the uncertainty causes such severe stock price drops. As I have said before, I am stunned that heads havent rolled at Netflix given the strategic, financial and marketing disaster of these past few months.

Edited October 25, 2011 by Fan in Chicago

[Fezmid]

Perhaps the amount of the stock drop is an over-reaction.

Yes, I'm purely referring to stock price.

[Jauronimo]

Yes, I'm purely referring to stock price.

Netflix stock has taken a beating but its still trading at 20x earnings, so I'm not as convinced that this is a total over reaction as much as it is now more accurately priced after being driven absurdly high.

 

This summer's events and the way Netflix wavered with Qwikster has left investors doubting their long term vision. With contracts expiring and the price of content increasing by a factor of 10 from $180 million to almost $2 billion, those concerns have only grown. And with Blockbuster and RedBox chipping away at the DVDs by mail and giant Amazon rapidly adding streaming content (don't sleep on Hulu owned by NBC, Fox and Disney) , future earnings are very much in question.

 

Has anyone used Amazon Prime? Signed up for my free-trial today and interested to see how it stacks up to Netflix.

 

Does anyone know what the future may hold for Hulu? With their immediate access to all NBC, Fox, and Disney content (I assume) they could be an immediate powerhouse, especially if they lock out competitors from using their content.

 

I have no predilection as to who will come out on top. From an investment standpoint, if there's a company supplying network security or widgets or some such thing to all of them while they take each other out, that would be a nice way to gain some exposure to streaming video without getting wiped out if you pick the wrong horse. At least that's what the textbooks say.

Edited October 25, 2011 by Jauronimo

[Fan in Chicago]

Yes, I'm purely referring to stock price.

I should have bolded the amount part. That the stock is tanking is no surprise, given the recent news.

[Jauronimo]

Why Netflix Is A Lot More 'Expensive' Now

1:21p ET October 25, 2011 (Dow Jones)

Why Netflix Is A Lot More 'Expensive' Now

 

By Dan Gallagher

 

Is Netflix finally cheap, as it's down about 35% Tuesday? Not really.

Back in the summer, when Netflix (NFLX) shares had topped $300, a common refrain within the investment community was "great business, but way too expensive valuation."

Now, with the stock trading about one-quarter of that former price tag, it would stand to reason that Netflix at the very least has come down to a more reasonable valuation level - especially considering all of the company's recent troubles with an unpopular price hike, an on-again, off-again renaming plan for its DVD business and, now, a warning that profitability is going to be crimped over the next few quarters as the company continues to ramp up spending on streaming content even as it deals with an exodus of customers from its DVD business, which still accounts for the majority of earnings.

Oddly enough, a rash of estimate reductions from Wall Street analysts have had the opposite effect of making the stock's multiple look even more expensive.

Analysts have slashed their estimates for the company.

Netflix shares were down nearly 35% to $77.50 early Tuesday afternoon.

According to a tally by MarketWatch, at least 26 brokers have scaled back their foerecasts dramatically for the current quarter as well as for the 2012 fiscal year. The average 2012 EPS estimate among those who adjusted their targets Tuesday has plunged from $6.16 to $1.75.

Because of the effect of a dramatically lower denominator, the stock's current price puts Netflix shares at a multiple around 44-times the average of projected earnings for 2012. Before Monday's disappointing earnings report, Netflix shares were trading about 19 times the consensus forecast for 2012.

And estimates for 2012 all literally all over the map, with some analysts still expecting earnings for the year to top $5 per share, while others are projecting a small loss for the period. Michael Pachter of Wedbush Morgan noted the difficulty in projecting results for the period, with the unknown effects of subscriber loss as well as possible spending for new streaming content that is hard to pin down. He noted that "with management holding all of the cards and steadfastly refusing to show them to anyone, consensus becomes nothing more than an uneducated guess."

 

(END) Dow Jones Newswires

 

Nice breakdown on the current price of NFLX, I thought.