Netflix stock plummets as more subscribers leave

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The bad news keeps coming for Netflix.

Shares in the subscription video company plunged more than 20% in after-hours trading Monday after it reported that it lost more U.S. subscribers than expected in the quarter ended Sept. 30 and would gain very few by the end of the year.

A total of 810,000 domestic customers canceled their Netflix subscriptions in the last quarter after a surprise price hike and a much derided, ultimately aborted move to separate its DVD shipping business from its streaming service under a new brand called Qwikster.

The Los Gatos, Calif., company had told investors last month that it expected to lose 600,000 subscribers. As of Sept. 30, Netflix’s total number of U.S. customers was 23.79 million, down from 24.59 million three months earlier.

Perhaps more disturbing to investors, however, is that Netflix said its growth would continue to stall in the current quarter. Breaking out its streaming and DVD subscribers for the first time, the company predicted that by Dec. 31 it would have between 20 million and 21.5 million streaming customers, flat or down from its 21.45 million as of Sept. 30.

DVD subscribers, meanwhile, are expected to fall to between 10.3 million and 11.3 million, from 13.93 million on Sept. 30. Some people utilize both services and while Netflix did not predict a total U.S. number, the company is forecasting that it would be ‘slightly up’ by year end.

In a letter to shareholders, Chief Executive Reed Hastings and Chief Financial Officer David Wells were straightforward about Netflix’s recent missteps:

We greatly upset many domestic Netflix members with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-canceled rebranding of our DVD service. In doing so, we’ve hurt our hard-earned reputation and stalled our domestic growth. But our long-term streaming opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth.

In July, Hastings and Wells told investors to expect the company to return to its growth pattern in the current quarter and that it could for the first time generate $1 billion in revenue. Instead, the high end of its estimates call for $875 million in revenue this quarter.

News was better abroad for Netflix, where it added more than 500,000 customers in Canada and Latin America, which launched in September, bringing its foreign total to 1.51 million. In early 2012, the company will expand into Britain and Ireland.

Third-quarter revenue was up an impressive 49% to $822 million, while net income jumped 63% to $62 million.

But investors had expected much better, sending the stock below $100 for the first time since July of 2010. In July of this year, it reached a high of $298.73. Netflix stock closed at $118.84, up 2%, or $1.80, before financial results were released.

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-- Ben Fritz

Photo credit: Associated Press