Should have shorted Netflix! (I thought about it)

Netflix lost 800,000 subscribers this quarter, the first decrease in subscriber base EVER. We all knew this would happen, of course, given the announcement to break Netflix up into two entities. There were plans to have a streaming business, Netflix, and a DVD by mail business, Qwikster. This, along with the price increase from $8/month for both services to $8/ month for each individual service, had members dropping like flies.

The shares are down 28% after hours to around $86.

Besides the drop in subscribers, the earnings were good. Netflix reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter. Revenue rose 49 percent to $822 million. Both revenue and income topped analysts’ expectations. 

Netflix still has 23.8 million subscribers. Amazon, who is trying to compete in the streaming video business through 'Prime', has 5 million members.

Is this a buying opportunity, or is Netflix forever condemned to the no-buy list? I think there is a definite chance that Netflix can save itself. Its revenues grew 49% since last year, and yet after the major haircut it's going to get tomorrow morning when the market opens, it will be trading at a P/E of less than 20. I don't believe that CEO Reed Hastings has lost the vision that got him and his company where they are today. He did, after all, recognize when he made a poor decision and change it. I am faithful. You shouldn't invest on faith, but perhaps this isn't a situation of faith, but rather of value. A high growth stock whose prospects appear, on the surface, to be bleak, is trading at below 20 x earnings.

Call me nuts, but I think Netflix has a large subscriber base who are happy with the service and a business model that will continue to bring in new customers. Imagine, for a second, that Netflix lands a content deal significantly upgrading their database from old flicks to more recent ones. This is Netflix's main problem and if fixed would certainly make ME a subscriber. Ruminate and please comment with thoughts. I'm curious to see what others have to say.



What an ugly chart that is. It's going to look even worse tomorrow!

Cheers,
EZ