Netflix Expects Losses to Continue in 2012
Netflix (NASDAQ:NFLX) shares plunged today after the company announced it expects losses in 2012, and will delay global expansion plans because of faltering results in the U.S., its first and largest market. In its quarterly earnings report yesterday, the company predicted losses for “a few quarters” in 2012.
Netflix shares have dropped nearly 37% this morning, now trading at $75.44. The company has surrendered more than $10 billion in market value since hitting an all-time closing high of $298.73 on July 13.
As competition in the streaming-video business rises, with Amazon (NASDAQ:AMZN) in particular upping its game, Netflix is now facing rising content costs that forced it to increase pricing, which led to customer revolt and a large exodus. Not to mention, the company is facing startup costs as it expands into Latin America this year, and plans to expand in the the U.K. and Ireland in early 2012, which it just announced yesterday. Chief Executive Officer Reed Hastings said other new markets will have to wait.
As the result of many customers cancelling their subscriptions following the price hikes and an abandoned plan to split Netflix’s streaming from its mail-order DVD service, domestic customers this quarter will fall short of the 24.9 million analysts had forecast. “We’ve definitely had our stumbles,” said Hastings in an interview. Slowing down the expansion “is a good thing from an investor’s standpoint.”
Netflix reported net income rose 65% in the third quarter to $62.5 million, or $1.16 a share. Sales were up 49% to $821.8 million, beating expectations of $812.8 million.