Netflix Forecast, Economies of Scale Meet Management Misstep (NFLX, CSTR)

Netflix Inc. (NASDAQ: NFLX) has a new name… Growth Interrupted.  Much of its problems are tied to the new pricing as well, perhaps much more so than the slowing economy.  Then there is the matter of scale and saturation as one product will only appeal to so much of any given population.  Netflix has officially lowered its U.S. subscriber growth targets this quarter due to a drop in its DVD-only customers.

The number is now expected to be about 21.8 million in streaming versus a prior target of 22 million; and it expects 14.2 million million DVD customers versus 15 million expected previously.  Those numbers have overlaps of course, The total is now about 24 million expected versus 25 million previously forecast in July.

Netflix was originally hoping that the numbers would remain the same and that the price moves would not hurt the company.  It gambled wrong.  The company is trying to maintain its third-quarter financial outlook as well as its international subscriber forecast.  As far as the excuse, “We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come.”

Shares were already way down from highs at $208.71 versus an all-time high of $304.79, and shares are down another 16% around $174.50 in pre-market trading.

If there is a winner it is likely Coinstar Inc. (NASDAQ: CSTR) for its Redbox video rental vending and drop box return service.  Its shares have not traded.

JON C. OGG