Netflix Inc., the mail-order and online film-rental service, fell the most in more than three years after cutting its U.S. subscriber forecast following a price increase.
Netflix slid $39.46, or 19 percent, to $169.25 at 4 p.m. New York time on the Nasdaq Stock Market, the largest drop since April 2008. The shares had gained 19 percent this year before today.
The company, which unveiled new prices in July, will have 2.2 million domestic DVD-only subscribers at the end of this quarter, compared with its previous projection of 3 million, according to its statement published today. The Los Gatos, California-based company also said it will have 9.8 million streaming-only users after previously predicting 10 million.
The “rare, large and surprising misstep” came after Netflix in July split its mail-order and streaming services into two plans, Barton Crockett, an analyst at Lazard Capital Markets, wrote in a research note today. The move effectively raised prices by 60 percent to $15.98 a month for people who want DVDs and online access.
Netflix probably lost 594,000 U.S. subscribers as a result of the price change, said Crockett, who has a “neutral” rating on the shares.
“Netflix can test the impact of new pricing plans on new subscribers, but it can’t easily test the impact on the installed base of a pricing change,” he said.
Netflix said it plans to use the revenue from the price increase to license more streaming content. The first company to offer an all-you-can-eat streaming service, Netflix is seeking to expand its library of more than 20,000 online titles amid increasing competition from Hulu LLC and online retailer Amazon.com Inc.
“We know our decision to split our services has upset many of our subscribers,” Netflix said. “Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term choice.”
Time Warner Inc.’s Warner Bros. television plans to sell more of its shows to digital services like Netflix and Amazon.com, Bruce Rosenblum, president of Warner Bros. television, said today at an investor conference sponsored by Bank of America Merrill Lynch in Beverly Hills, California.
As customers shift to Netflix’ streaming-only plan, the average revenue it receives per user rises because it costs far less to stream than process and mail DVDs, Michael Olson, an analyst at Piper Jaffray & Co., said in a note.
The “silver lining” of the revised forecast was Netflix reiterating its financial and international-subscriber estimates for the quarter, Olson said.