A lot of investors seem to think so. Netflix shares rose 6.1% today — closing at $247.38, the highest that number’s been in nearly two years — after the company said that it will replace its usual audio quarterly conference …
The better-than-expected Q1 profit and subscriber growth results that Netflix reported last night thrilled investors. But it hasn’t settled the debate among analysts over whether the streaming company is just beginning to soar, or is about to peak. Netflix’s stock price is +135% so far in 2013, including today’s 24% jump to about $216 in late morning trading. Fans say that the Q1 numbers indicate that CEO Reed Hastings’ plan is working, and there’s no telling how far Netflix can go if it becomes a must-have service for people who want to stream TV shows and movies in the U.S. and abroad. For example Janney Capital Markets’ Tony Wible raised his target price this morning to $250 from $190 noting that Netflix’s deals to secure original content “may ultimately discourage competition.” Susquehanna Financial Group’s Vasily Karasyov raised his target to $224 from $107 saying that in summer 2014 Netflix could raise its $7.99 a month subscription price “which will provide additional support to the stock.”
UPDATE, 1:08 PM: Here we go again. Netflix closed today at $57.01 – a 5.4% drop and its lowest price in more than two and a half years. Its market value is now about $3.2B, down about $1.3BM …
UPDATE, 2:10: PM: Netflix closed at $60.28, which is -25.02% – and its lowest closing price over the last 52-weeks. During the trading day it also touched $59.20, the lowest intra-day price for the last 52 weeks. …
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 is in for a brutal morning: The stock is down 35% in pre-market trading from its $118.84 close yesterday as some influential Wall Street analysts tell investors it’s time to dump the stock following last night’s disappointing earnings report and forecast. Susquehanna Financial Group’s Vasily Karasyov downgraded Netflix to “negative” from “neutral.” He says that it “looks like the nuclear winter scenario is playing out” for the company as “subscriber base expansion in the U.S. appears to be minimal and losses from international launches are weighing on profitability.” The combination will “put to rest the bull case on (Netflix) as we know it.” Janney Capital Markets’ Tony Wible also downgraded the stock to “sell” – and slashed his price target in half to $51. Calling the company’s business model “unsustainable” he says: “Fundamentals are eroding, management credibility is shot, international growth is deteriorating, and margins are imploding. Furthermore, the company’s disclosures support our view that the DVD business accounts for a disproportionate amount of (Netflix’s) profits (82%),” which means investors should look at it as an old-fashioned rental company instead of a digital-age power. Even Netflix supporters are retrenching.
UPDATE, 7:40 AM: Did I say Netflix stock could “take a hit”? Let’s make that a left hook to the jaw. The company’s down more than 13.7% in heavy volume early trading on a slightly up day for the overall market. Analysts are lining up to take their whacks at Netflix: Lazard Capital Markets’ Barton Crockett, who has a “neutral” recommendation, calls the company’s reduced 3Q subscription forecast a “rare, large and surprising misstep.” And Susquehanna Financial Group’s Vasily Karasyov, also in the “neutral” camp, warns that 4Q subscriptions also could disappoint. Each 1M subscribers account for $11.2M in revenues and 2 cents in Netflix’ per-share earnings, he says.
PREVIOUS, 5:03 AM: Netflix stock could take a hit today: The company says this morning in a letter to shareholders that domestic subscriptions aren’t holding up as well as it anticipated in July after it announced that it would sell digital streaming and DVD rentals separately — raising the price of the combined service by 60%. Netflix says its 3Q report likely will show that it has 21.8M streaming customers, below the 22M it forecast in late July. And DVD-only rentals are way off: It now expects 2.2M subs vs 3M it anticipated. About 12M pay for both services, same as the July forecast. The company says: “We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come.”
Adding to the bad news from Netflix, Janney Capital Markets analyst Tony Wible reiterated his “sell” recommendation this morning in a report that says subscription growth could suffer after February when the company’s due to lose movies and TV shows from Starz. The premium cable channel recently said that it won’t renew its contract. Netflix “is now asking its subs to pay more for less,” Wible says.
UPDATE: Netflix Shares Close -4.1% After Price-Hike Backlash; Blockbuster Offers Deal To Lure Rival’s Angry Subscribers
UPDATE: 12:00 PM: Rival Blockbuster has just pounced on Netflix’s public relations problem, announcing that it is launching a nationwide promotion in which existing Netflix customers who switch to one of Blockbuster’s two Total Access plans (1 disc at a time for $9.99 a month or 2 discs at a time for $14.99 a month) will receive a 30-day free trial. The company, which recently was purchased at a bankruptcy auction by Dish Network, said that besides a lower price it offers benefits Netflix doesn’t: availability of many new releases 28 days before Netflix, unlimited in-store exchanges, video game rentals and no extra charge for Blu-ray movies. “Blockbuster quickly responded to the cries of Netflix customers,” Blockbuster president Michael Kelly said in the release announcing the promotion. “Blockbuster Total Access is Netflix ‘without the wait.’ The combination of DVDs by mail and unlimited in-store exchanges provides more than 100 million people living near Blockbuster stores immediate convenience and unparalleled choice.” The offer is good through Sept. 15; Netflix customers can go to Blockbuster’s website to enroll or show a red Netflix envelope at a Blockbuster store.
PREVIOUS, 10:11 AM: It’s shocking to see how badly Netflix appears to have underestimated the general confusion and anger that has followed the announcement on Tuesday that it’s raising by 60% the price of its combo DVD-by-mail rental and video-streaming service. More than 5,000 mostly furious customers responded to the Netflix blog post unveiling what BTIG analyst Richard Greenfield calls “perhaps the boldest single move in (Netflix) history.” And Netflix shares are down about 3.6% in midday trading as Wall Street wonders whether the company raised prices enough to cover revenue it will lose from people who cancel the service. Lazard Capital Markets’ Barton Crockett says that “few will pay the jarringly higher price” for the streaming and DVD combo plan and “most will move to (Netflix’s) cheaper streaming-only” service. Netflix could lose some of its most profitable customers — the ones who pay the monthly fee for DVD rentals but don’t bother to order many discs. Merriman Capital’s Eric Wold says he “would not be surprised” if many of those subscribers bailed on Netflix to rent DVDs from Redbox’s $1-a-night kiosks. But Goldman Sachs’ Ingrid Chung says Netflix will probably come out ahead: The company makes a much higher profit from streaming than it does from DVD rental, and “a very high number of subs would have to churn off to offset the pricing increase.”