Fallout Continues on Netflix Subscriber Concerns27 Oct, 2008 By: Erik Gruenwedel
Shares of online DVD rental pioneer Netflix Oct. 27 closed below a 52-week low as investors continued to react negatively to lower subscriber estimates.
In a financial call last week, Neflix co-founder and CEO Reed Hastings said year-end subs would range from 8.85 million to 9.15 million compared to previous estimates of 9.7 million.
Citing a “markedly deteriorated” economy, Hastings said new subscribers in the current quarter had already fallen 30% compared to the same period last year.
“The current economic recession means continued subscriber growth … but not as fast as last year,” he said.
Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, said Netflix’s stock slide was more a result of a weak market than concerns about softer subscriber growth.
“The market hates all stocks with consumer exposure [right now], so you're seeing all retailers getting killed,” Pachter said.
Independent analyst Rob Enderle said Netflix is tied at the hip with consumer spending, which he said for the first time in a lot of households is being prioritized.
He said expenses such as food and utilities will top the list of must-have and services like Netflix will fall towards the bottom.
“Getting new customers, particularly this quarter, will be an elusive goal and I think the market is reflecting that,” Enderle said.
Pachter said it is not just DVD that will feel the pinch. He said the video game industry, traditionally a strong market entering the holiday shopping season, is under pressure.
“Nobody is doing better than [video game retailer] GameStop, and yet it's stock is down to $25 from a high of $63,” Pachter said. “Netflix is suffering the same fate.”