Tags: Netflix | Estimate | cut | Damage

Analyst Cuts Netflix Estimate, Citing Brand Damage

Tuesday, 11 Oct 2011 02:42 PM

Netflix's recent moves have damaged its brand, and its subscriber growth may slow, said an analyst as he cut his 2012 earnings estimate for the online video and DVD by mail company. Shares fell 5 percent, deepening the stock decline of the past three months.

On Monday Netflix said that it would reverse a decision to separate its DVD-by-mail and Internet streaming services. It would keep the two plans on a single website, rather than adding a new website for DVDs called Qwikster.

The Qwikster plan was widely derided by Netflix customers.

The about face by Netflix means that people will be able to use both services under one account and one password. But the company is sticking to new pricing plans introduced in July, which separated payments for streaming service and mailed DVDs. Prices rose for many subscribers because of the move, and some have already quit the company.

Netflix, which is based in Los Gatos, Calif., had 24.6 million subscribers at the end of June, but it warned last month that it expected a net 600,000 to leave by the end of September because of the price increase.

The prospect of Qwikster may have caused more pain.

"Netflix's price change and subsequent Qwikster launch did meaningful brand damage that likely reduced subscriber additions and will take time to repair," said Andy Hargreaves of Pacific Crest said in a client note.

The fast cancellation of Qwikster "provides evidence that net subscriber additions late in the third quarter and early fourth quarter were below the company's expectations," he added.

A Netflix representative could not be immediately reached for comment.

Hargreaves lowered his 2012 earnings forecast to $6.26 from $6.57 per share. He also gave a 2013 earnings estimate of $8.17 per share, which is based on 44.5 million global streaming subscribers.

Analysts polled by FactSet expect 2012 earnings of $6.35 per share and 2013 earnings of $8.37 per share.

But Hargreaves said Netflix still has strong growth prospects and could reach 62 million global streaming subscribers by the end of 2016. He kept a "Sector Perform" rating on the stock.

Netflix shares dropped $5.56 to $106.06 in afternoon trading, earlier setting a 52-week low at $103.13. The stock has lost 63 percent of its value in the past three months.

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