Monday, October 24, 2011 at 4:49 pm.
Netflix loses 800k subscribers and another 20% in stock price
Netflix’s nightmare Q3 is in the books. And shares are getting hammered after-hours — down more than 20% — as the company says it expects to lose more U.S. streaming subscribers next quarter because of its price increases and DVD split-up. Including tonight’s action, Netflix shares have now lost more than 2/3 their value since mid-July, which is pretty crazy. Many details in Netflix’s letter to shareholders (PDF).
There are a lot of lousy stats in Netflix’s report, but here’s the most important good one: Only 7% of Netflix’s new streaming subscribers — the future of the company — are signing up for DVD rentals. All of this trouble that Netflix has been through is in an effort to kill the DVD, so Netflix can push consumers and Hollywood toward an era of streaming. And despite all the drama, losses, and brand damage, it seems to be working.
Meanwhile: Netflix finished Q3 with 23.8 million total U.S. subscribers, down about 800,000 from Q2. That is the first time in memory that Netflix has reported losing customers, and may be the first time ever. But we knew this was coming. Meanwhile, international growth pushed Netflix past 25 million total subscribers worldwide, which was also expected.
The surprise that seems to be scaring people: Netflix expects its U.S. subscriber base to shrink again this quarter. Here are their words:
We expect streaming net additions will be negative in October due to the cancellation wave referred to above, and as the wave subsides and gross additions remain strong, net additions will be about flat in November, and strongly positive in December. Overall for the quarter we expect slightly negative streaming net additions.
On the bright(er) side, Netflix says streaming usage is up about 3X year-over-year, despite about 1.5X the number of subscribers. And Netflix says that despite its PR disaster, gross subscriber additions — the raw number of people who sign up for Netflix — were actually up 20% year-over-year last quarter, to 4.7 million.
A few more notes:
- Netflix says it has not yet decided whether or not to offer videogame rentals, something that was considered for the Qwikster spin-off.
- It says it isn’t planning to offer a cheaper “hybrid” plan for streaming and DVD service; it would prefer to cut prices for streaming. Again, only 7% of new streaming subscribers also sign up for DVD.
- Only about 6% of streaming hours are Starz content, which Netflix anticipates to lose next year.
- Netflix has already reached 10% household penetration in Canada in a year.
So, has Netflix hit bottom? I hope so — it’s crazy to watch this happen to a fundamentally good company. If it can stop losing customers this quarter, and return to growth in 2012, then it should be in good shape. But let’s hope there are no more flare-ups this quarter.
Follow-up: Netflix’s plan to kill the DVD is working