Netflix warns of more cancellations, shares drop

Tue Oct 25, 2011 12:38am BST

A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011. REUTERS/Mike Blake

A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011.

Credit: Reuters/Mike Blake

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(Reuters) - Netflix Inc lost more customers than it anticipated in the third quarter and warned of still more defections to come, pushing its shares down 27 percent as the one-time Wall Street star grapples with the fallout from a price increase and other unpopular moves.

The top video rental company reported a better-than-expected 49 percent surge in third-quarter revenue to $822 million (513 million pounds), surpassing Wall Street's target of about $812 million. It also beat expectations on earnings per share.

But investors -- mindful of how the company led by CEO Reed Hastings had driven away customers in recent months and damaged its credibility with a price rise and other high-profile stumbles -- focussed on the fourth-quarter warning.

Netflix shares plummeted 27 percent to $86.70 in after-hours trading, about 70 percent below the high of just under $300 per share in July.

"The reason the stock is getting crushed is the trends just continue to deteriorate," Janney Montgomery Scott analyst Tony Wible said.

Netflix said it had lost more than 800,000 U.S. subscribers in the third quarter, more than the about 600,000 it had forecast in September. Total U.S. subscribers stood at 23.8 million.

Looking forward, the company said DVD subscriptions will "decline sharply this quarter" but total U.S. subscribers, which includes customers who pay for its online streaming service, will be "slightly up."

Netflix has been writing big checks to expand its streaming content so it can attract new subscribers and return to the red-hot growth it was once famous for. In 2012, content spending will "nearly double" from this year, the company said.

Netflix also forecast a loss for the first quarter of 2012 as it expands into Europe.

"We expect the costs of our entry into the UK and Ireland will push us to be unprofitable on a global basis; that is, domestic profits will not be large enough to both cover international investments and pay for global G&A and technology and development," Hastings said in a letter to shareholders accompanying its quarterly report.