Netflix (NFLX) reported third quarter revenue and profit per share that beat analysts’ estimates, but a drop in subscriptions caused the stock to drop like a rock in after-hours trading.
Netflix shares fell by $31.28, or 26%, to $90.90 late Monday.
Revenue in the three months ended in September rose to $822 million, yielding EPS of $1.16. Analysts on average were looking for revenue of $811.79 million and earnings per share of 96 cents. Netflix reduced its subscriber estimates in September, and reported a higher than expected level of cancellations — a decline of 145% in net U.S. subscriber additions — in the current quarter vs one year ago.
The company attributed the subscriber drop to the “PR storm that engulfed our brand.” Netflix infuriated subscribers with a new plan that separated streaming and DVD products, and raised prices by 60% price to near $16 for both services (or $7.99 for each.)
The company said in its earnings press release that
“7.99 for unlimited streaming and $7.99 for unlimited DVD are both very aggressive low prices, relative to competition and to the value of the services, and they are the right place for Netflix to be in the long term. What we misjudged was how quickly to move there. We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content, and steady DVD costs, so that … many perceived us as greedy. Finally , we announced and then retracted a separate brand for DVD. While this branding incident further dented our reputation, and caused a temporary cancellation surge, compared to our price change, its impact was relatively minor.”
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