The company provided yet another example of what trending expert Faith Popcorn called our “cocooning” society – the ability to order movies online rather than queuing up and forking over first-run prices at the local Bijou. What Netflix Inc (Nasdaq: NFLX) has offered consumers, since its launch in 1999, is a kind of best-of-both-worlds situation – movies hot out of the cutting room that they can view with the family without distraction, as many as they can view in a month, for one low price.
However, this week, storm clouds hovered over the company, with news that not enough North Americans are taking advantage of this revolutionary service to keep growth humming along, while the higher-ups at the company seek markets overseas. As a result, the company’s stock took a vicious 25% price hit on Wednesday, another 5% on Thursday.
By 2009, Netflix, based out of Los Gatos, California, had grown to the point where it was offering a collection of 100,000 titles on DVD and had surpassed 10 million subscribers. On February 25, 2007, Netflix announced the billionth DVD delivery. In April 2011, Netflix announced 23.6 million subscribers in the United States and over 26 million worldwide. By 2011, the total digital revenue for Netflix reached $1.5 billion U.S.
Now, the company finds itself at the crossroads; is Netflix fading to black, or merely changing reels?
Jon Friedman of Marketwatch is of the former opinion, stressing that this week alone, "at least seven Wall Street analysts lowered their price target for the stock," which has lost 75% of its value in just the past year after trembling at its own near-term growth prospects.
On the other side sit those who are still bullish on Netflix. Mark Mahaney of Citigroup, for example, said there is "opportunity around the controversy" connected to the company’s growth outlook, and Mahaney is far from alone.
Still, Friedman argues that no one on Wall Street would "give a hoot any more that Netflix has popular products," adding that "it will no longer mean a thing that Netflix once dislodged Blockbuster and the other entrenched DVD rental establishments."
The columnist points out that the company’s troubles began a few weeks ago when CEO Reed Hastings "seduced" Wall Street with a post on Facebook (rather than the standard press release), a move that created a lot of excitement, especially when Hastings declared in the post that users of the service had viewed about a billion hours on the streaming site in June alone. The stock jumped about 14% in a matter of days.
But then, Friedman argues, reality set in.
"Barclays media analyst Anthony DiClemente wrote: 'Because of international investment, it appears unlikely that (Netflix) will be able to generate material, positive (earnings per share) in the next couple of years. We are therefore ...taking our price target to $80 from $95 (U.S.)'"
And, it appears, it’s been all downhill from there ever since for the company, and those in the know are not so sure this time out that the stock market will again receive the benefit of the doubt.
Amid all the warm fuzzies given off by Europe’s central banks late this week – vibes that pumped lots of energy into the equity market as a whole, NFLX recovered $1.91 Friday, or 3.4%, from the ashes of Wednesday and Thursday (when it plumbed a 52-week low of $56.14), to close the week at $58.92. Still, that’s a far cry from the 52-week high of $270.71, set in the last week of July 2011.
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