Netflix jolted its already shell-shocked shareholders with a third-quarter financial report that portrayed a company in crisis.
Netflix's blooper reel, released Monday, included an even larger customer exodus than the company had foreseen after announcing an unpopular price increase in July. What's worse, the report contained a forecast calling for more defections from the largest U.S. video subscription service.
The backlash will deprive Netflix Inc. of some the revenue that management had been counting on to finance the company's expansion plans while it pays higher fees for Internet video streaming rights. The result: Netflix expects to post losses next year when it starts selling its steaming service in Britain and Ireland. The company didn't offer further specifics.
None of the developments pleased Wall Street as Netflix lost more than a quarter of its value after the bad news came out. If that sharp decline holds in Tuesday's trading, it will mark the first time Netflix's stock price has fallen below $100 in nearly 14 months.
Netflix shares shed $31.19, or more than 26 percent, to $87.35 in Monday's extended trading.
It's the latest setback for a former stock market darling whose shares topped $300 just 4 ½ months ago. Netflix's market value had already plunged by about 60 percent, or nearly $9 billion, before Monday's late sell-off.
Netflix lost its luster among consumers and investors by raising prices as much as 60 percent in the U.S. and bungling an attempt to spin off its DVD-by-mail rental service.
The company, which is based in Los Gatos, California, ended September with 23.8 million U.S. subscribers, down about 800,000 from June. Netflix had predicted it would lose about 600,000 U.S. subscribers in a forecast released last month.
Management expects to gain U.S. subscribers in the current quarter, although Netflix didn't set a specific target. But a substantial number of Netflix's customers are expected to choose between renting DVDs through the mail or streaming video over high-speed Internet connections —instead of paying for both services.
The biggest hit is expected on the DVD side, a service that Netflix has been de-emphasizing to save money on mailing costs as its spends more to license movies and TV shows for its Internet video library. The company expects its DVD subscribers to fall from 13.9 million as of Sept. 30 to as low as 10.3 million at the end of December. Streaming subscriptions in the U.S. may rise by as much as 100,000 subscribers in the quarter, according to the company's projections.
The outlook looks even grimmer, considering that Netflix consistently added 1 million to 2 million subscribers per quarter leading up to the price increases.
From a financial perspective, Netflix did better than analysts expected in the July-September period.
The company earned $62.5 million, or $1.16, per share, in the third quarter. That compared to income of $38 million, or 70 cents per share, at the same time last year.
The performance topped the average earnings estimate of 96 cents per share among analysts polled by FactSet.
Netflix's revenue climbed 49 percent from the same time last year to nearly $822 million — about $9 million above analyst estimates.
Netflix's downfall leaves CEO Reed Hastings in a precarious position.
Once regarded as one of the savviest leaders in technology and entertainment, Hastings has turned into a punching bag for frustrated Netflix customers and shareholders. Many of them are still befuddled by his recent decision making.
After Netflix's higher prices kicked in on Sept. 1, Hastings amplified the outrage by outlining a plan to toss the DVD rental business onto a separate website called Qwikster. The split from the Internet streaming service got panned so badly that Hastings reversed course in less than three weeks.
"We've hurt our hard-earned reputation and stalled our domestic growth," Hastings wrote in a letter accompanying Monday's third-quarter report. "But our long-term streaming opportunity is as compelling as ever and we are moving as quickly as we can to repair our reputation and return to growth."