Netflix stock plunges on subscriber loss estimates

Wall Street pummeled Netflix (Nasdaq: NFLX) stock Thursday morning, after the company said it expects it will count 24 million total subscribers at the end of the third quarter, down from previous estimates of 25 million customers. Netflix ended the second quarter with 25.6 million subscribers. 

Netflix Q3 2011 guidance

Netflix revised its guidance for Q3 downward. (Source: Netflix)

Netflix stock had dropped nearly 13 percent to $181.75 by 11:10 a.m. ET, down $26.91 per share. Netflix CEO Reed Hastings and CFO David Wells acknowledged that its recent price hike, and its decision to split DVD rentals into a different division, is impacting subscriber growth. But the Netflix execs said they stand by the move.

"We know our decision to split our services has upset many of our subscribers, which we don't take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come," they said in a letter to shareholders.

When Netflix reported second-quarter earnings on July 25, the company said it expected to count 22 million streaming video subscribers and 15 million DVD rental customers. In its new estimates, Netflix said it expects it will count 21.2 million streaming video customers and 14.2 million DVD customers at the end of the third quarter.

While Netflix may not grow as fast as some industry observers has expected the company remains a big threat to cable and satellite distributors that could lose customers that could cut the cord on pay TV to rely on streaming video from Netflix for home entertainment. Even if Netflix counts 24 million customers at the end of the third quarter, it will have more subscribers that Comcast (Nasdaq: CMCSA) , which counted 23 million video customers at the end of Q2, and DirecTV (Nasdaq: DTV), which has 19.4 subscribers.

For more:
- See Netflix letter to shareholders (PDF)

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