The myths of this market continue breaking one after another. After two substantial and long overdue trading blow ups in the past 24 hours, we next turn to that other momo miracle: Netflix, which at last check had plunged 12% to about $180 following an update from the company, in which it said it subscriber growth will come in below plan. Of course, the only ones surprised by this move, are those who are actually long NFLX (and those who bought into Goldman's topticking upgrade which brought the stock to over $300 however briefly). We expect "value investor" of very high conviction, Whitney Tilson, who lately has been known best for shorting low and covering higher, to soon resume his bearish position in the name. And yes, we still expect that the company will very soon come to market with a dilutive equity offering to raise cash and stench the relentless real cash burn.
From the company:
September 15th, 2011
Dear Fellow Shareholders,
Two months ago we took a big strategic step by separating streaming and DVD-by-mail into two distinct services, and we now have more visibility into our expected Q3 2011 results. Our financial guidance for the quarter is unchanged, as is our international subscriber guidance. We are, however, lowering our domestic subscriber estimates as reflected in the graphic below.
Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice. The strategy behind the split of our services is four-fold:
(1) to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
(2) to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
(3) to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
(4) to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.
We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come.