Netflix Inc. (NFLX) dropped the most in seven years after the video-rental service said it lost 800,000 U.S. subscribers in the third quarter, more than expected, and predicted more cancellations over a price increase.
Netflix plunged 35 percent to $77.37 at the close in New York, the biggest decline since October 2004. The stock reached a record $298.73 on July 13, according to Bloomberg data, and has lost more than $11 billion in value since.
The outlook suggests Netflix has been unable to contain a subscriber revolt over a price increase and aborted plan to force subscribers into separate streaming and DVD services. The company now forecasts losses in 2012 because of costs to offer content in the U.K. and Ireland, and will delay further expansion until profitability is restored.
“Are they moving too quickly?” said Michael Olson, an analyst with Piper Jaffray Cos. in Minneapolis. “Clearly the answer is yes.”
Netflix’s market value has declined from a peak of $15.7 billion in July to $4.06 billion. At least five analysts today downgraded their ratings on the Los Gatos, California-based company, citing lost management credibility and a dwindling subscriber base amid strong competition.
Domestic subscribers fell to 23.8 million as of Sept. 30 from 24.6 million three months earlier, a bigger decline than the company projected in September, according to a website statement yesterday. This quarter, U.S. customers will fall short of the 24.9 million analysts were predicting.
Investors are trying to gauge the extent of the fallout from the price increase and aborted plan to put DVD customers on a new service called Qwikster. The number of people taking both DVD and streaming services is expected to decline, Netflix said.
The company yesterday projected it would add as many as 52,000 domestic streaming customers over the holiday period, while losing as many as 3.63 million high-margin DVD subscribers. Netflix added 3.08 million customers globally in the year-earlier period.
Chief Executive Officer Reed Hastings, responding to questions, said he has no plans to step down and declined to comment on discussions with Netflix directors. He downplayed the likelihood of a big increase in marketing efforts to win back subscribers.
“Our streaming marketing has been very effective in the past two years,” Hastings said. “We are going to work on improving the user interface, expanding to more platforms and delivering more content. There’s no grand gestures, there’s just a lot of steady and intense efforts.”
Domestic streaming subscriptions are forecast to decline this month, level off in November and rebound in December to end at 20 million to 21.5 million, Netflix said. DVD subscriptions will fall “sharply” to 10.3 million to 11.3 million customers.
Fourth-quarter profit will be $19 million to $37 million, or 36 cents to 70 cents a share, on revenue of as much as $875 million, the company said. Analysts were projecting profit of $1.10 a share on sales of $919 million, according to Bloomberg data. The company earned $47.1 million, or 87 cents a share, on sales of $595.9 million, a year earlier.
Domestic subscriber growth is particularly important because Netflix has used its wide lead over U.S. rivals to finance growth in its streaming business and expand overseas.
Netflix had projected a loss of 600,000 users on Sept. 15 to end the third quarter at 24 million. The actual results were worse than the average loss of 780,000 customers seen by 10 analysts in a Bloomberg survey.
For the third quarter, Netflix reported net income rose 65 percent to $62.5 million, or $1.16 a share. Analysts projected 95 cents, the average of 25 estimates. Sales rose 49 percent to $821.8 million, beating expectations of $812.8 million.
Netflix’s $200 million of 8.5 percent notes due November 2017 fell to a 15-month low. The debt declined 2.625 cents to 108.25 cents on the dollar as of 10:53 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest price since the bonds traded at 106.5 cents on the dollar in July 2010.
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