Netflix is in deep $#!%—this we know. But is it fundamentally broken?
Wedbush analyst Michael Pachter has indeed called Netflix “broken.” In a research note to investors, Michael today wrote that “in hindsight, a 60 percent increase on the hybrid customer was too much,” referring to the company’s U.S. service. With the damage already done, Michael anticipates the once unstoppable Netflix is poised to lose as many as 11 million of its hybrid customers by the end of the year. Most of them will have migrated to the company’s streaming-only option—retaining them as subscribers but halving user-generated revenue—while up to 4 million will simply ditch Netflix completely.
To make up for the losses, Netflix will need to attract 15 million streaming subscribers, a virtually impossible achievement considering its crippled state. The Wedbush analyst affirms that Netflix’s now notorious “growth at all costs” strategy will diminish profitability as the company continues its global expansion push despite local turmoil. Netflix could bleed anywhere from $100 to $300 million next year, Michael believes, due to a mix of fleeing consumers and rising content costs.
Netflix’s stock has already fallen from $300 to just $65, and is down roughly 5% today, despite the vast majority of the market rallying upward. Some say shares could dip into the 40’s in 2012, with the stock already down a staggering 75% in just 6 months.