* Shares plummet after tepid user forecasts
* 2012 net adds level with 2010
By Lisa Richwine
LOS ANGELES, April 23 Video rental company
Netflix Inc projected slower subscriber growth this
quarter for its key U.S. video-streaming service, disappointing
investors and sending its shares down 17 percent after hours.
While Netflix reported a first-quarter loss that was not as
steep as Wall Street projected, it warned that domestic
second-quarter streaming additions would fall below the level
during the same period in 2010.
The stock plunged 17 percent to $84.85 in after-hours
trading, down from a close at $101.84 on Nasdaq.
Despite predicting total U.S. streaming-subscriber additions
in 2012 would reach about 7 million, "about the same as in
2010," the nearer-term guidance rattled investors, said Wedbush
Securities analyst Michael Pachter.
Adding customers to the instant-streaming business is
crucial to the company's future as it moves away from mailing
DVDs in its signature red envelopes. And sustaining strong
growth in users will help offset rising costs as Netflix writes
bigger checks for new movies and TV shows.
"They are giving a signal to the Street their growth story
is over," said Pachter, who rates Netflix a "sell."
Netflix said seasonal variations would affect second-quarter
customer growth. In a letter to shareholders, CEO Reed Hastings
and CFO David Wells said they saw "nothing new or particularly
concerning" about customer viewing, acquisition and retention.
"All are healthy," they said.
"Our gross additions are strong. Our retention is strong. We
are feeling good about the year," Hastings said in an interview
Netflix never fully recovered credibility with investors
after a tumultuous 2011, when a price-hike and plan to hive off
its DVD business -- quickly abandoned -- sparked cancellations
by angry customers.
It lost more than 800,000 U.S. subscribers in the third
quarter, though it rebounded by gaining back 610,000 in the last
three months of the year.
Once one of Wall Street's highest-flying stocks, its shares
dropped from $304.79 in July to $62.37 in November.
"The brand recovery is partway complete" and will take about
three years with most of it happening the first year, Hastings
said during a conference call with analysts.
For the first quarter, Netflix posted revenue of $870
million, up 21 percent from a year earlier. The company had a
net loss of $4.6 million or 8 cents per share in the quarter,
versus a net profit of $60.2 million a year earlier.
Analysts had expected a loss of 27 cents per share,
according to Thomson Reuters I/B/E/S.
The company added 1.7 million U.S. streaming customers in
the quarter for a total of 23.4 million. DVD subscribers fell by
about 1.1 million to 10.1 million.
Some analysts have speculated Hastings will try to sell the
DVD business. On the conference call, he said he was not
considering the idea.
While it transitions to streaming and expands around the
world, Netflix faces growing competition from rivals such as
Amazon.com Inc and Comcast Corp's Streampix.
The company attributed its quarterly loss to start-up costs
abroad. Netflix added 1.2 million customers in international
markets during the second quarter, for a total of 3.1 million.
The company said it expected to return to profitability in
the second quarter and launch in another European market in the
fourth quarter of this year.
The move into another market may have added to concerns
among investors, said Gabelli & Co analyst Brett Harriss.
"It's very aggressive. I think investors are gun-shy from
their last aggressive move" into foreign markets, said Harriss,
who has a "hold" rating on Netflix.