Netflix's fall from grace: Can it recover?

In early July, buying Netflix (Nasdaq: NFLX) looked like a can't-lose proposition: The online video provider was dominating the streaming market. In April, at the end of Q1, Netflix counted 23.6 million subscribers and was forecasting that number would reach 25 million by the end of the second quarter. Yet as it turned out, those solid-looking earnings and subscriber numbers hid weaknesses that didn't become apparent until Netflix began an ill-fated attempt to shift its business model. Now, the company is struggling to win back subcribers and reassure investors  that it is poised to continue to grow its streaming video business.

"Although Netflix built itself a castle, it was protected by a narrow moat," Eric McWhinnie at Wall St. Cheat Sheet wrote. Not only are competitors like Dish (Nasdaq: DISH)-owned Blockbuster, Apple (Nasdaq: AAPL) iTunes and Amazon (Nasdaq: AMZN) scooping away chunks of streaming subscribers, but content owners are clinging ever more tightly to their television shows and movies and demanding higher fees to license them to Netflix viewers. The twin threats put Netflix in a difficult position: Higher content costs--some analysts forecast a jump from $180 million in 2010 to nearly $2 billion by 2012--meant subscriber prices had to rise.

But Netflix's 60 percent price hike, while initially a popular announcement on Wall Street, sent subscribers into a fury. And its attempt to separate its streaming service from its bread-and-butter DVD by mail service was met with derision by those same subscribers--1 million of whom quickly became ex-subscribers. The subscriber losses have resulted in Netflix stock getting hammered on Wall Street, dropping it from an all-time high to below its 52-week low, and sent Street analysts spinning from euphoric "buy" recommendations to "sell" by September's end.

Here's a timeline of Netflix's sudden tumble from its perch on top of the OTT world to share-losing, subscriber-shedding slide into competitors' territory.

July 7: Netflix stock at $292.42 per share; subscribers pass 25 million

July 11: Netflix sends email to subs announcing 60% price jump

July 12: Shares climb, trading above $300 and closing at $291.27, but subscribers howl

July 18: Wall Street Journal rates Netflix as one of its top five stocks for 2011; shares trade at $276.50

July 19: Shares are steady at $287.59 and are up $111.59 for the year to date

Netflix's July 25 Q3 subscriber forecast

July 27: Stocks close at $266.91, still considered a buy thanks to strong Q2 earnings

Aug. 3: Shares slowly move downward; close at $257.20

Sept. 4: Shares are trading at $211.91 as Starz pulls the plug on its content deal

Sept. 15: Shares fall 18.9% in a single day, to $169.25, as Netflix announces nearly 1 million customers have dropped their subscriptions

Sept. 17: Stocks end the day at $155.19

Sept. 18: Subscriber numbers tumble; Netflix revises forecast downward for Q3, to 21.8 million U.S. streaming subscribers and 14.2 million U.S. DVD subscribers, down from 22 million and 15 million

Sept. 19: CEO Reed Hastings apologizes, announces Qwikster name; stocks rise 2%

Sept. 20: Share prices tumble below 52-week mark to $130.03

Sept. 27: Dish Network announces Blockbuster Movie Pass, a more limited streaming service than expected that still aims to compete with Netflix

Oct. 10: Qwikster shelved; stocks climb 6.47% to $124.79

Oct. 11: Shares slip downward 2% to $108.66

Oct. 12: Shares stabilize, move up 5% to $113.74. Forecast: Netflix will grow to 62 million subs by 2016

Total stock value loss, July-October: 63%

Trading range for Sept 2010-Sept 2011: between $107.63 and $304.79

Netflix's revised Q3 subscriber forecast

Update:

Oct. 25: Netflix stocks drop 36 percent after the company's Q3 earnings report is released, revealing that it lost more than 800,000 subscribers in Q2. Stocks were trading at $76.05 at 10:00 a.m.

Nov. 7: The provider signs a contract extension with Disney for content, and scores an exclusive rights deal with MGM to stream its movies in the UK and Ireland. It also could face obstacles as it inaugurates service in Latin America, says Jose Otero of Signals Telecom Consulting.

Nov. 22: On the heels of an announcement that the company planned to sell $400 million in stock and bonds, share prices drop again by 5 percent to $75.47.

Nov. 28: Wall St. Watchdog reports on SEC data showing that several large investors, including Morgan Stanley and Artisan Partners (among others), significantly reduced their Netflix shares in Q3.

Nov. 29: Standard & Poors downgrades its debt rating on Netflix to BB-. Stocks slump again, dipping to $66.82 by noon.

Sources: Wall Street Watchdog, Yahoo! Finance