On October 24th, Netflix (NFLX) will report its earnings and for the first time this year investors will focus on how many subscribers the company lost rather than gained. As a result, the company will enter the conference call on the defensive, and whether Netflix can calm investors, and deliver a clear plan for future growth, which will be key to whether its stock can regain its luster.
This week's death of Quikster, the ill-conceived DVD mail service spin-off, hints at the conference call's tone. Netflix will attempt to atone for missteps while shifting investors' focus to its future, rather than its past.
Netflix had hoped to off-load its price-hike public relations nightmare through Quikster. Instead, the company alienated customers accustomed to one stop shopping, further wounding its brand. Quickly killing Quikster is a decisive move, which may suggest Netflix is refocusing on delivering great content and communicating its value to its customers. Or it may simply be yet another example of the ongoing identity crisis, which I wrote about in mid September.
Unfortunately for Netflix, Quikster's demise does little to ease investor concerns regarding Netflix's inner sanctum. Questions remain over how Netflix failed to foresee the backlash over its price strategy and why management was willing to dilute its powerful brand with Quikster's creation in the first place. More directly, investors remain uncertain whether actions have been taken to prevent future gaffes.
Likely lost in the conversation will be exciting developments including international expansion and in house creative content. Netflix will try to keep these talking points front and center, but they'll likely take a back seat to the more pressing issue of lost market share.
This may mean Netflix's conference call, while entertaining, may prove less insightful to its future than competitor conference calls. Coinstar (CSTR), which owns Redbox, DISH Network (DISH), which owns Blockbuster, cable companies like Comcast (CMCSA) and potential streaming competitors Google (GOOG), Apple (AAPL) and Amazon (AMZN) will offer insight into who won market share, giving investors clues to whether former Netflix customers will return or be lost forever.
In the end, Netflix will have a tough time keeping investors focused on its growth story if it can't answer questions regarding its strategy mistakes. The company needs to assure investors every future step will be researched, planned and executed. If they don't, they'll have a hard time winning back jaded investors.
Disclosure: I am long CSTR.