Netflix's Stock Plunges In After-Hours

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Update: Netflix shares fell 14 percent on Tuesday, closing at 87.50.
Netflix's Stock Plunges In After-Hours
By Swanni

Washington, D.C. (April 24, 2012) -- Netflix's stock plunged 16 percent last night in after-hours trading after the company revealed its first quarterly loss in seven years and warned that sub growth could slow in the second quarter.

Although the online video rental service said it added 1.74 million U.S. streaming subscriptions in the first quarter (and 3 million overall, including international subs), investors seemed concerned that Netflix could have a shaky year due to increased competition in the streaming category and a shrinking catalog of TV shows and movies. (Netflix's content agreement with Starz expired this year and the company has had difficulty getting some new videos immediately after their release.)

In addition, Netflix said yesterday that its DVD subs fell 1.08 million to 10.1 million, which narrowed its overall U.S. sub growth in the first quarter to 660,000.

In an analyst call after release of the first quarter report, Netflix CEO Reed Hastings tried to stay upbeat, saying "we had a fantastic Q1...the business is performing exactly as we had hoped."

However, the analysts served up a number of challenging questions. Here is a sample of Hastings' responses:

Has Netflix regained its trust with subscribers after raising prices 60 percent last year? (Nearly 800,000 subs dropped the service after the increase.)
Hastings: The brand recovery is partway complete. We had said it would probably take 3 years with the bulk of the recovery in the first year. That still seems to us to be the correct model. So we're feeling good about the progress we've made. We are conscious that it's tender and that we have to be extremely diligent and thoughtful in the way that we act as we build back our brand reputation.

Shouldn't your subscriber cancellations be decreasing now?
Hastings: The average consumer is watching...nearly an hour a day, and then they're not canceling. So the cancelations is amongst the people who aren't watching much. So our job is to get those light users that are not very active to be watching more. And the other phenomena is as the service gets better known and more popular, that expands the circle of people who join it, who maybe aren't as much in entertainment as the initial 20 million or 25 million. And so it's natural that as the service expands its reach, that there is continued churn as people try it, figure out if it's for them right now and if not, they get off.

If people aren't watching enough, is it because there isn't enough content?
Hastings: If you think about the moments of truth for a member, at any point in time, they can watch Netflix or they can watch cable or they can watch their DVR, they can watch a DVD or they can watch Hulu. And we have to win enough of those moments of truth to keep the subscriber active.

Are you considering changing your minimum price ($7.99 a month)?

Hastings: We're feeling great about our $8 dollar price because we can then get lots and lots of content for our subscribers, so no anticipated changes there.

Do you see any reduction in quality of service due to increased competition from other streaming companies? Could your Internet service get slower?
Hastings: The technology underlying the Internet and fiber optics is absolutely mind blowing. So you can take our peak viewing on a Saturday night, 100 percent of our global viewing, and it can still fit into a single fiber optic. I anticipate continued growth of the broadband power being released as more and more become...we become a fiber optic nation and a fiber optic world.

What do you think? Offer your comments below!

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What do you think? Offer your comments below!

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Phillip Swann is president and publisher of TVPredictions.com. He has been quoted in dozens of publications and broadcast outlets, including CNN, Fox News, Inside Edition, The New York Times, The Washington Post, The Chicago Tribune, The Financial Times, The Associated Press and The Hollywood Reporter. He can be reached at swann@tvpredictions.com or at 703-505-3064.

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