Netflix Inc.’s shares dropped as much as 7 per cent Tuesday after it warned of a loss for 2012, a move the prompted several Wall Street analysts to cut their price targets for the online video and DVD rental company.
Analysts at Caris, Janney, UBS and Wedbush Securities all slashed their price targets for Netflix, citing the company’s outlook. It had previously said it anticipates a loss only in the first quarter of 2012.
The problem, it said, is that it has recently lost a “significant” number of customers, who objected to Netflix’s decisions to raise its prices and split up its streaming and DVD business – an idea it later dropped.
Shares were down 4 per cent in morning Nasdaq trade, after dropping as much as 7 per cent to $69 in the session’s opening minutes.
“If we do not reverse the negative consumer sentiment toward our brand, and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted,” it said.
Until it can start adding more net subscribers, it said quarterly revenue would be relatively flat. For 2012, that means it will post a loss, it said.
Netflix’s outlook adjustment came in a late filing on Monday, which said it had raised $400-million in new capital by selling convertible debt to long-time backer Technology Crossover Ventures and stock to funds managed by T.Rowe Price.
Most analysts welcomed the extra capital infusion as a form of insurance as Netflix invests in buying and creating more programming for its online video subscribers.
The Los Gatos, California, company has had a troubled second half of the year during which it has lost about two-thirds of its market value since its shares touched a high of nearly $300 in July.
There have been a range of strategic missteps that have led to more recent questions about its financial strength in the face of rising content costs and competitive pressures from the traditional cable and satellite TV companies.
Some on Wall Street appeared unhappy that Netflix did not provide cleared 2012 guidance on its Oct. 24 quarterly conference call. In a research note, Lazard analyst Barton Crockett said investor relations had called the decision to update its guidance in the filing a “clarification” to its comments on the earlier conference call.
“At that time, Netflix punted when asked if they see losses for the full year,” Mr. Crockett said of last month’s call.