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Netflix stock sags after guidance for slower U.S. subscriber growth

October 24, 2012|By Dawn C. Chmielewski

Netflix Inc.'s stock plunged Wednesday, as investors reacted negatively to guidance that its streaming service would attract fewer subscribers in the U.S. this year than expected.

The company's shares were trading at $60.50 at midday Wednesday, down about 11% from the previous day's close. The stock dip followed Netflix's revised guidance for subscriber growth in the U.S, which came during its third quarter investor call Tuesday after the market closed.

Netflix delivered better-than-expected revenue growth for its third quarter ending Sept. 30. However, the company said it expected to add 4.73 million to 5.43 million customers to its U.S. streaming service this year, down from its previous guidance of 7 million.

The company's revenue projection of $931 million for the fourth quarter also was off from consensus estimates of $944 million, noted Sterne Agee in its analyst report.

Wedbush Securities analyst Michael Pachter expressed skepticism about Netflix's ability to continue growing its domestic streaming service under a report provocatively titled "Why We're Not Drinking the Netflix Kool-Aid."

Pachter wrote that Netflix appears to have converted the majority of potential streaming subscribers on mobile devices, game consoles and smart TV into paying subscribers. The media analyst said he sees few other catalysts for continued growth of Netflix's domestic streaming service -- dismissing as "inconsequential" next month's launch of the Nintendo Wii U console, coming updates of other game systems, and new mobile phones and tablets.

Other analysts saw challenges for Netflix's domestic streaming business.

"Netflix believes it can ultimately penetrate 50-75% of all U.S. homes," wrote Tim Nollen of Macquarie Capital. "We find this extraordinarily optimistic, and we believe the guidance reduction for Q4 bodes ill."

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