After trading over $300 in July, Netflix (NASDAQ: NFLX ) should open trading
Tuesday at less than $90 a share. It's all thanks to a brutal earnings report
after the bell Monday that showed customers left in droves and revenue missed
forecasts by a mile. The culprit is obvious: the ill advised Qwikster scheme
that planned to split NFLX streaming services and DVD delivery into two separate
operations instead of a one-stop website. Qwikster was ultimately killed before
it became a reality, but the damage remains to the once-loyal customer base of
Netflix. Of course, the story here isn't the fact that Qwikster took a toll on
NFLX. That was painfully obvious months ago. The real story here is about the
continued descent of Netflix stock and whether the company will ever truly be
able to recover. Hopefully NFLX shareholders were aware they hadn't seen the
worst of this Qwikster debacle. Since September, we've known that the company
may be dealing with a defection of up to 1 million Netflix customers due to
price increases and general mishandling of the entire ordeal. And any Netflix
investor or customer has surely strolled through online forums eviscerating the
company and its CEO Reed Hastings for the move – proving anger has not abated.
The true depth of this crisis became clear after the closing bell Monday.
Netflix ended September with 23.8 million U.S. subscribers, down about 800,000
from June – significantly worse than expected. Going forward, things look ugly
too. The lion's share of the company's U.S. subscribers are streaming
customers, with 21.45 million as of the end of Q3. But Netflix expects
fourth-quarter subscriptions to fall in the range of 20 million and 21.5
million. Flat at best? That's not very impressive. Worst of all, a planned
expansion into the U.K. will be costly and the lack of expected revenue could
mean a quarterly loss in the first quarter of 2012. So there you have it – a
deep loss in current subscribers, the prediction of future losses and the chance
of a money-losing start to 2012. You have to wonder if Netflix will ever get
beyond the Qwikster debacle and the hubris of CEO Reed Hastings . True, Netflix
saw a big jump in profits, from $38 million in the third quarter of 2010 to
$62.5 million this year. Revenue surged to nearly $822 million, $9 million above
forecasts. It's not like Netflix is going bankrupt. And even if NFLX gets to
$80, that will still be an over 50% gain in two years – double the Dow Jones
returns in that same period. But the writing is on the wall. Netflix said loud
and clear that it didn't care about its customers, and has a lot of work to do
if it wants their trust bank. This comes at the worst possible time, as the
competition is heating up for NFLX. Hulu is considering an IPO , Amazon.com
(NASDAQ: AMZN ) and Facebook are going heavy with streaming video. Netflix has
been on a red hot run for a few years now, and it's hard for investors to
watch a darling stock like this crash to earth. However, those wishing and
hoping for a second act at Netflix better have realistic expectations. The
company itself has left the door open for future subscriber losses and a
quarterly loss in 2012. Just imagine if management has miscalculated and things
turn out much worse. Given the track record of CEO Reed Hastings and others at
Netflix, that wouldn't exactly be a surprise. Jeff Reeves is the editor of
InvestorPlace.com. Write him at editor@investorplace.com , follow him on Twitter
via @JeffReevesIP and become a fan of InvestorPlace on Facebook . As of this
writing, he did not own a position in any of the aforementioned stocks.
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