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Posted on 17 September 2011 | 3,263 views

Netflix Stock NFLX Crashes 48% Over the Past 2 Months

In July 2011, Netflix (Stock Symbol: NFLX) raised its prices, saying its business model had changed considerably from its early days of sending DVDs back and forth to customers by post in ubiquitous red-and-white envelopes.

Now, acknowledging that more people wanted to stream video over televisions and computers, the company planned to change the way it charged customers, in effect charging the tech-savvy folks more, starting September 1, 2011.

This past week, Netflix seemed to have gotten a bit of a shock — it was forced to lower its guess about how many subscribers it will have at the end of September by 1 million people. CEO Reed Hastings and CFO David Wells thought this was important enough to write a letter about it to investors.

Contributing to the ongoing pressure on the stock — Caris & Co. analyst David Miller this morning cut his rating on the stock to Average from Above Average, with a new target of $185, down from $322. “While we can argue all day long about the importance of meeting or exceeding financial targets regardless of subscriber targets, NFLX’s current multiple reflects a unit growth story, not a margin enhancement or free cash flow story,” he writes in a research note.

This summer probably marked the beginning of the long road for Netflix to reach its fair value, which is something in the region of $60 to $80 per share after the Netflix Crash is over.

Netflix shares plummeted 19% to $169.25 per share Thursday September 15, 2011 — a 10-month low. Rival Coinstar (Stock Symbol: CSTR), which operates the Redbox DVD rental kiosk chain, saw its shares rise more than 7% to $48.49 per share. On Friday September 16, 2011 — Netflix shares continued to drop another 8% to $155.19 per share.

Since July 13, 2011 when Netflix made an intra-day high of $304.79 per share and a closing high of $298.73 per share, its stock has now fallen 48% as of September 16, 2011.

It’s been a rough few weeks for Netflix. In addition to the backlash over its pricing changes, negotiations to renew its streaming content deal with Liberty Media Starz (Stock Symbol: LSTZA) broke down September 1, 2011. The Starz Network was an early supporter of Netflix streaming and provides movies from Walt Disney (Stock Symbol: DIS) and Sony (Stock Symbol: SNE).

Amazon.com (Stock Symbol: AMZN) has made recent licensing deals with CBS and NBCUniversal in order to offer more streaming content in a bid to compete with other video streaming services such as Netflix and Hulu.

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