Netflix Destroys Value
Reed Hastings, CEO of Netflix
Netflix's (NFLX) fall from grace has deemed the company and its management team, led by Reed Hastings, as one of the worst of 2011.
After running up nearly 70% in the first half of the year, the video-rental giant made several missteps that sent the stock free falling, ending the year down 59% -- and 75% off its July high or nearly $300.
The company's precipitous decline started with management's decision to raise prices on its most popular one DVD-by-mail and unlimited streaming package by 60%. The increase was spurned by subscribers, who criticized the company for the way it approached raising prices. To make matters worse, shortly after the price hike, Netflix revealed that it was unable to reach an agreement with Liberty Starz to renew its streaming content deals. That means Starz movies and television shows will be pulled from the service come February. This escalated consumer ire, with subscribers complaining that they didn't want to pay more for less content. In the throes of customer and Wall Street dissatisfaction and grasping at straws, Netflix made a surprise announcement in September that it planned to separate its DVD-by-mail and streaming services into two businesses. The streaming service would remain under the Netflix banner and the DVD segment would become a new business called "Qwikster." Subscribers took to the message boards again, voicing concern that the separation of the two services would make it more complicated for users of both to organize and watch content. Ultimately, Netflix reversed its decision, doing away with Qwikster but not before issuing a mea culpa to investors regarding the way it handled its new strategies. But subscribers were not that forgiving, and the price hike and failed negotiations with Starz led to a loss of about 800,000 subscribers in the third quarter. Netflix also announced an aggressive international growth story in 2011, launching a streaming service in Latin America and the Caribbean and laying groundwork for an entry into the U.K. and Ireland early next year. Due to costs associated with overseas growth, Netflix warned that it expects to swing to a loss in 2012. It previously said that it expected to be unprofitable for several quarters next year before revising its outlook. Management has provided no indication about when it expects to return to profitability. Netflix's obliterated stock price has led to chatter of a possible takeover in 2012. Amazon (AMZN) and Verizon (VZ) have been pegged as possible acquirers, as both company's eye a market share in the streaming video space. -- Jeanine Poggi
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