Netflix stock plunges on concerns about growth
| LOS ANGELES
It鈥檚 looking like another bad summer for聽Netflix.
One year after a sudden price increase and a bungled plan to establish a new DVD brand, the subscription video company鈥檚 stock is again plummeting.
It fell 25 percent on Wednesday, closing at $60.28. [Update: Netflix stock had fallen another 5 percent Thursday in mid-afternoon trading.]聽
This time the culprit is investors鈥� concern that domestic growth is slowing while management is moving too fast to expand overseas. Following disappointing news in Tuesday鈥檚 financial results, at least seven Wall Street analysts lowered their price target for the stock.
Wednesday鈥檚 drop took聽Netflix聽shares to their lowest point since early 2010.
In a letter to shareholders, Chief Executive Reed Hastings and Chief Financial Officer David Wells disclosed that聽Netflix聽will have to hit the high end of its third-quarter guidance to reach a previously stated goal of 7 million new domestic streaming video subscribers in 2010.
In reports to clients Wednesday, many analysts expressed skepticism about this goal.
In addition, those analysts were not optimistic about聽Netflix鈥檚聽plan to plow most of the profits from its domestic business into international expansion over the next several years, which will keep it around break-even on a global basis.
Some were also concerned about competition from Amazon, Hulu, Redbox and cable providers, as well as the lower profit it is earning from streaming compared to DVDs.
鈥淲e believe聽Netflix聽faces risks tied to competition, a slowdown in sub growth, global expansion that will offset profitability for years, and cannibalization of the high-margin DVD business,鈥� wrote Janney Capital Markets鈥� Anthony Wible.
This was the second quarter in a row in which聽Netflix鈥檚聽stock dropped precipitously on the day after financial results were released. In April, shares fell 14 percent as concerns about domestic streaming subscriber growth first flared.
Still, some analysts remained relatively optimistic compared to the stock鈥檚 current dismal state. Lowered price targets by firms such as Credit Suisse and Barclay鈥檚 Bank were $100 and $80 respectively, well above the stock鈥檚 Wednesday closing price.
And some said the issue was not whether聽Netflix聽is on the right path, but whether Wall Street will be suitably patient.
鈥淲e appreciate聽Netflix鈥檚聽long-term vision and believe it is likely the right strategy going forward,鈥� wrote analysts at JPMorgan, 鈥渂ut limited profitability is likely to weigh on shares in the near-term.鈥�
