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Netflix Stock Takes a Hit

24 Feb, 2004 By: Holly J. Wagner

Netflix stock dropped 12 percent on revised guidance for the quarter ending March 31 after the company announced subscriber acquisition costs would increase by about $2 per subscription from previous estimates.

The company immediately logs the marketing expense associated with acquiring a new subscriber when a subscriber joins the service. That cost is expected to be $36 per subscriber vs. $34 the company was planning for in its last guidance statements.

Subscribers are signing up more quickly than expected, so the costs are going on the books sooner, the company said in announcing the downward revision in GAAP net loss guidance for the quarter.

In early-afternoon trading, the stock had rebounded slightly, off about 10.5 percent at $31.36 per share. Analysts at First Albany downgraded the stock from a “buy” to a “neutral.”

The good news for Netflix is projected subscriber growth, which executives expect to exceed the growth rate in each of the prior four quarters on a year-over-year and quarter-over-quarter basis. The company attributed the swell to television advertising and online acquisition sources.

Netflix bumped its subscriber projections to the1,860,000 to 1,935,000 range at the end of the quarter, up from 1,750,000 to 1,825,000; boosted revenue projections to the $96 million to $101 million range from $94 million to $99 million; and more than doubled its GAAP net loss projections to the $5.6 million to $8.1 million range from $1.2 million to $3.7 million.

Long-term prospects appear a little brighter, with the company anticipating churn of 4.7 percent to 5.2 percent, down slightly from 4.8 to 5.3 percent.

The company's next update is expected April 15.

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