In early trading Netflix shares are down about 3.3% from yesterday’s $74.47 close – and flirting with the possibility of ending the day at a new 52-week low. Investors are still trying to make sense of last night’s announcement that it struck two deals to raise $400M, with a warning that it expects a net loss in 2012. That’s a change from its previous guidance to expect “several quarters” of losses. The company agreed to sell $200M in common stock, at $70 a share, to accounts managed by T. Rowe Price Associates in addition to its $200M convertible notes offer to Technology Crossover Ventures. With the deals “we have strengthened our balance sheet and remain focused on growing our streaming subscriptions and returning to global profitability after our launch of the U.K. in 2012,” CFO David Wells said.
But several analysts say that they’re pessimistic: Caris & Co’s David Miller lowered his price target to $59 from $77 since Netflix “is sending the rhetorical signal to the Street that the effects of its Q3 public relations nightmare have not stemmed subscriber defections, at least not in the near term.” Lazard Capital Markets’ Barton Crockett says his earnings forecast is under review adding that the company’s “recent history of quick outlook changes suggests reason to be skeptical.” Janney Capital Markets’ Tony Wible questions Netflix’s decision to raise capital just after it spent hundreds of millions of dollars to repurchase its shares. That “reinforces our view that (Netflix) has been buying stock to offset the dilution from its large issuance of equity to its management team, which has aggressively sold the stock with many options priced as low at $1.50 per share.” Susquehanna Financial Group’s Vasily Karasyov says that analysts’ earnings forecasts “will have to come down.” But Credit Suisse’s John Blackledge was a lonely bull, saying that the refinancing “strengthens (Netflix’s) balance sheet and improves its financial flexibility” although it probably won’t be used to finance additional content deals.


The key words here being “(Netflix) has been buying stock to offset the dilution from its large issuance of equity to its management team, which has aggressively sold the stock with many options priced as low at $1.50 per share.” The overpaid, filthy rich management team (yes Reed, that includes you) get richer, having been given options WAY below market value, while the average person who bought the stock at $75… $100… $150… or more, get screwed and lose their children’s college funds. You know, I wouldn’t be surprised in the least bit if management short-sold the stock before announcing the price increases.
If they don’t use the new capital to finance additional content, what are they doing with it exactly? Spending it on bandwidth? Servers? Executives who screw up?
Seems that what they need to succeed is to get more and better streaming contet, which will take more money. If they don’t do that, they are in trouble.
Business schools will teach the Netflix Disaster for many years to come.
And Coca Cola execs are doing fist pumps whilst shouting, “Yes! Finally!”
It’s amazing to see such self-destructive stupidity in a company that could have nipped it in the bud immediately by pulling back after their initial pricing gaffe by simply saying “wow, we screwed up big time. We are so so sorry. Please give us another chance. We are lowering the price to $12.99 for both services which is what we should have changed it to in the first place. We really do value our customers and do not want to lose a single member’s business. Please give us this chance to fix our mistake.”
It’s too late now though. RIP Netflix.
People just don’t get it, the studios want more for content, you either pay them, raise your prices, or you simply go out of business.
People need to forget the price increase and either pay it or cancel IT’S NOT GOING BACK TO THE PRICES OF 2010, weather we’re in a recession or not, weather you have the money to pay for it or not, even Redbox raised their prices and Blockbuster is NO bargain, and I’m a Dish Network customer, and even I thought their price system was crazy.
Yes it was an incredible deal. They may have been right and$16 is still a deal but they blew it on the PR front. They should have worked harder to lay it out to their customers. I never really heard them explain that the price increase was due to the exploding costs from the movie industry to stream their content. I read that in other places. Netflix should have played the victim card if that is really the case.
No, media companies just don’t get it. Better to take a lower profit margin than deal with a complete subscriber revolt, and months of unrelenting negative press. They, like you, forgot the first rule of good business: the customer is always right.
The Netflix model worked untiled they effed with it, it’s hard to be an independent these days. When Amazon and iTunes were growing they gave away tons of free promo points that allowed people to sample their wares without having to pay; genius way to reach new customers. Netflix needs to get those promos out to lure in new customers to replace the ones who fled. Folks who tried it in the past tended to sign up for the service.
I am not on Nexflix side and I get the importance of the customers. My point is they blew it from the start. If they had made their customers understand the position they had been put in instead of rolling out a plan in an absolutely arrogant way they would have had their customers fighting with them instead of against them. It may be better to operate at a lower margin but not when the risk and cost is greater than the risk. They rolled the dice from a position of arrogance and they got what they deserved. And they still don’t get it.
They owned a gold mine. There was a time not long ago when every 3rd piece of mail delivered was theirs. Then they raised their prices. Gold mined out.