Netfix, Inc. (NFLX), a company that provides subscription-based Internet services for movies and television shows in the US and internationally, dropped 35 percent on Tuesday, amid a backlash of subscribers outraged by price increases and a botched attempt to spin off its DVD-by-mail service.
Netflix finished the quarter ending September 2011 with 23.8 million subscribers, down about 800,000 from June. Netflix said it expects even more subscriber loss in the coming months, resulting from a 60 percent price increase in July.
The latest earnings release was accompanied by a drop of over $41.34 to $77.50 in late morning trading Tuesday. Although it reported better than expected financial results for the quarter, it was overshadowed by loss of subscriber base.
While major analysts are downgrading ratings for the stock, it may present a unique buying opportunity for adventurous investors.
Netflix became a Wall Street favorite in early 2010, when the company experienced a rapid growth after forcing Blockbuster to shut its storefronts. Netflix, from inception, has thrived on innovation and first mover advantage in a rapidly changing landscape of Internet content streaming.
The stock price may still be slipping further down to possibly as low as $60, but the company can still rebound from the lows and growing short interest in a 1- to 2-year time frame.
Even amid the backlash from subscribers, Netflix still holds major advantage over other competitors. Netflix lays claim to the largest catalog of titles and a plethora of direct-to-device streaming compatibility when comparing to rivals, such as Hulu Plus (Shared ownership stake by NBCUniversal, News Corporation (NWS), The Walt Disney Company (DIS), Providence Equity Partners & Hulu team), Amazon (AMZN) or Apple's (AAPL) iTunes. A quick comparison of the providers reveals that Netflix still offers the best value for the money in streaming, not to mention the only service to also have an optional add-on DVD-by-mail service.
| Provider | Price for Rentals | Subscription | Movies & TV |
| Netflix | 7.99/month | Yes | Over 150,000 titles |
| Hulu Plus | 9.99/month | Yes | Full seasons of 120 TV Shows |
| Amazon | 99 cents - $3.99 per title | No | Over 75,000 digital downloads |
| iTunes | 99 cents - $4.99 per title | No | Over 75,000 digital downloads |
Source: Dailyfinance.com
While subscribers may try out other services due to anger toward the way management has treated them as customers, they are sure to return in due time based on value and selection offered by Netflix. Expect further continuation of a downtrend leading to mid $50s to low $60s, which makes a great entry point for a long play on this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
