Netflix (Nasdaq: NFLX) finally felt some of the pain it allegedly helped cause pay-TV operators, losing 800,000 subscribers in the third quarter, most attributed to--what else?--its price increase that sparked subscriber ire and ignited a share price free fall. The company ended the quarter with 23.8 million subscribers, missing its projected 25 million by a sizable enough margin that, despite otherwise solid earnings, its stock dove in after hours trading nearly 40 percent to $79.
Netflix said it earned $62.5 million, or $1.16 per share, up from $38 million, or 70 cents a share, a year ago.
It also warned that, in coming quarters starting in 2012, it's likely to post losses as its international expansion--including its newly announced plans to expand in the United Kingdom and Ireland--eat into what it expects will remain a profitable U.S. enterprise.
As to international expansion, Netflix said it would pause after its latest foray "until we get back to global profitability," CEO Reed Hastings said during the company's earnings call. "So that depends on how fast we can grow our global subscriber base, which will be some number of quarters. And we're eager to get back to continuing the international expansion because we see it as such a large opportunity. But we need to take a few quarters to get our subscriber base back to the appropriate size."
The company also said it expected only a small growth in subscribers for the upcoming fourth quarter.
Hastings said that cancellations came in two "waves," the first after the price hike was announced in July, the second after it went into effect in September. He said the second wave has been steadily slowing.
As to the cause of all of the woe, its price hike, Hastings maintained that the company believed $7.99 was a "great" price for the streaming service and said the company would continue to focus its efforts on building content, as opposed to marketing the service.
In a letter to investors, the company reiterated that it remained unapologetic about the price hike that started its slides from more than $300 a share to about $80 in just three months.
"What we misjudged was how quickly to move there," the letter stated. "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 absent that explanation, many perceived us as greedy."
The company said that, during the quarter it had "dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user‐interface, and more than doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD‐related pricing changes," as well as its proposed‐and‐now‐cancelled rebranding of its DVD service.
"We've hurt our hard‐earned reputation and stalled our domestic growth. But our long‐term streaming opportunity is as compelling as ever, and we are moving forward as quickly as we can to repair our reputation and return to growth," the letter said.
And, he said, the company hasn't seen any impact from Dish Network's (Nasdaq: DISH) effort to build out its Blockbuster Movie Pass streaming option or from the Amazon (Nasdaq: AMZN) Prime free video offering.
In an interview, Hastings, when asked whether he would step down after seeing the company's market value decline by more than $10 billion in recent months, said he would not, but declined to comment on his talks with Netflix's board of directors.
For more:
- see this Seeking Aplha earnings call transcript
- see this Bloomberg article
- see this letter to shareholders (pdf)
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Netflix to expand to U.K., Ireland in 2012
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