Netflix stock plunges on brutal 3Q, somber outlook

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SAN FRANCISCO (AP) - Netflix jolted its shareholders again with a third-quarter financial report that portrayed a company in crisis.

The video subscription service’s latest blooper reel, released Monday, included an even larger customer exodus than the company had foreseen after announcing an unpopular price increase in July. What’s worse, the report contained a forecast calling for more defections during the next few months.

The backlash will deprive Netflix Inc. of some of the revenue that management had been counting on to finance the company’s expansion plans while it pays higher fees for Internet video streaming rights. The result: Netflix expects to post losses next year when it starts selling its steaming service in Britain and Ireland. The company didn’t offer further specifics besides saying it won’t go into any other overseas markets until it’s making money again.

None of the developments pleased Wall Street as Netflix lost more than a quarter of its value after the bad news came out. If that sharp decline holds in Tuesday’s trading, it will mark the first time Netflix’s stock price has fallen below $100 in nearly 14 months.

Netflix shares shed $32.01, or nearly 27 percent, to $86.83 in Monday’s extended trading.

It’s the latest setback for a former stock market darling whose shares topped $300 just 4- 1/2 months ago. Netflix’s market value had already plunged by about 60 percent, or nearly $9 billion, before Monday’s late sell-off.

Netflix lost its luster among consumers and investors by raising prices as much as 60 percent in the U.S. and bungling an attempt to spin off its DVD-by-mail rental service.

Raising the prices had to be done, according to Netflix CEO Reed Hastings. He said, however, that Netflix should have taken more time to explain to subscribers that the company needed the money to pay movie and television studios for rights to stream more video over high-speed Internet connections.

“We became a symbol of the evil, greedy corporation,” Hastings said in a Monday interview with The Associated Press. “Then we faced a reputational hit that created significantly more cancellations than we anticipated.”

The company, which is based in Los Gatos, ended September with 23.8 million U.S. subscribers, down about 800,000 from June. Netflix had predicted it would lose about 600,000 U.S. subscribers in a forecast released last month.

Management expects to gain U.S. subscribers in the current quarter, although Netflix didn’t set a specific target. But a substantial number of Netflix’s customers are expected to choose between renting DVDs through the mail, or streaming Internet video, instead of paying for both services.

The biggest hit is expected on the DVD side, a service that Netflix has been de-emphasizing to save money on mailing costs as its spends more to license movies and TV shows for its Internet video library. The company expects its DVD subscribers to fall from 13.9 million as of Sept. 30 to as low as 10.3 million at the end of December.

Hastings said he expects Netflix’s DVD subscriptions to steadily decline, much like what has happened to AOL Inc.’s dial-up Internet connection service during the past decade as high-speed alternatives became more affordable.

Netflix’s streaming subscriptions in the U.S. may rise by as much as 100,000 subscribers in the quarter, according to the company’s projections.

The company’s outlook looks even grimmer compared with how rapidly Netflix had been growing. From the end of 2009 through June of this year, Netflix had gained 12.3 million U.S. subscribers _ adding an average of 2 million customers every three months.

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