Shares of tech giant Netflix (NFLX) are tumbling in premarket trading this morning after the company reported last night that it lost a massive 800,000 subscribers last period, due to price changes and a decision to split its streaming and DVD rental business.
Netflix reported its third quarter results last night, which were actually above analyst estimates, but shares are tradign down over 35% in premarket trading as investors react to news of such a massive drop in the company’s subscribers, its first in years.
Earnings for the quarter were $1.16 per share, on revenues of $822 million. Analysts had been expecting to see the company report earnings of $0.96 per share, on revenues of $812.5 million.
Typically when a company reports such strong earnings and revenues its stock trades sharply higher, but investors feel as though the subscriber drop that Netflix saw during the quarter may not be over just yet. Netflix has historically been very good at understanding what its customers want, and that is the reason why it became the leader in DVD rental and streaming video, but a couple big blunders earlier this year have left its subscribers, and investors scratching their heads and wondering if Netflix has lost its ability to stay ahead of the curve when it comes to giving its subscribers what they want.
Netflix’s first big mistake was to raise its monthly fees. While this did result in a new record for revenues, the company paid for that with few subscribers, and in its highly competitive insdustry, subcriber numbers are the key to success. Following the decision to raise its rates, it made an even more dramatic blunder in its decision to split its streaming and DVD rental business. It later changed its mind and reversed the decision to split to the 2 businesses, but the impact the decision had on its customers was not so easy to reverse.
Has Netflix lost touch with its customers? It definitely did earlier this year, and while it has tried to correct its mistakes, you have to wonder if / when the next big mistake will come from the company’s management. Netflix still has a solid business model, but once a company loses its customers confidence, it is very hard to regain it, and we will just have to see if Netflix is able to get back on track, or if customers will continue to look for other ways to get their streaming media.
The stock is down 37%, or $44.00 in premarket trading to $74.77
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