2012 Not Looking So Hot for Netflix; Shares Drop to Lowest Point Since March 2010
November 22, 2011 5:34 PM
The company announced a bleak 2012 outlook yesterday and analysts have since cut their price targets for the company
Netflix was once king of the
/rental subscription business, but has had a rough time ever since announcing the price hike and plan changes back in July. It hasn't been able to bounce back, and now, Netflix anticipates a loss in 2012 that has Wall Street worried.
Originally, Netflix only anticipated a loss in the first quarter of 2012. But the company announced a bleak 2012 outlook on Monday without going into detail as to whether it sees losses for the entire year.
According to Netflix, the problem at hand is a loss of subscribers over the months and increasing copyright costs. The DVD/streaming company has 22 million streaming-only subscribers, but has seen a decrease in DVD customers, which makes up most of the profit.
"The DVD business, which is 80 percent of the profit, is starting to go away, and if there's a thin margin on streaming, those two things go against one another," said Tony Wible, Janney Montgomery Scott analyst.
Analysts from Janney, Caris, Wedbush Securities and UBS have all cut their price targets for Netflix after the announcement of the bleak 2012 outlook. Netflix shares have also taken a beating today, dropping by $3.90 (5.2 percent) to $70.57 in afternoon trading. It fell as low as $69 earlier, which is the lowest it's been since March 2010.
"If we do not reverse the negative consumer sentiment toward our brand, and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted," said Netflix.
Netflix also announced Monday that it would raise $400 million in cash by selling convertible notes and stock to T. Rowe Price Associates and Technology Crossover Ventures.
After raising prices and changing plans in July, Netflix hit a few other bumps in the road that ticked customers off. In September, Netflix
limited streams per account
, lost its
distribution deal with Starz
lowered Q3 subscriber forecasts
by 1 million, and decided to make a
DVD spin-off service called Qwikster
, which it
"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner
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