Netflix Shares Nosedive

Netflix shares plunged 36 percent by midday today (Tuesday), trading at $74.88 -- their lowest level in 18 months. Since the company announced just three months ago that it was instituting a major price increase for subscribers wishing to continue receiving DVDs by mail as well as stream them, $12 billion of its market value has disappeared. The latest plunge follows Monday's release of Netflix's quarterly report, which disclosed that more than 800,000 subscribers had dropped out during the quarter. The company also disclosed that it would probably operate in the red for a few quarters because of expansion costs. Some analysts are now arguing that even at $75.00, the stock is priced too high, trading at 17 times current earnings. In a note to clients, Tony Wible of Janney Capital Markets noted that in addition to the subscriber exodus, "management credibility has crumbled, international adoption is weak (as we suspected), content costs are mounting, and it is clearer that the DVD business accounts for the vast majority of profits. ... We believe the NFLX model is unsustainable. The company has paid exorbitant prices for content while painting itself as a cheap rental service." But Dan Rayburn, an analyst with Frost & Sullivan, told the Los Angeles Times , "The saving grace is that unlike a lot of other companies that get into this kind of situation, there isn't a competitor eating Netflix's lunch.

25/10/2011


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Tags: Stock - Exodus

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