Netflix Problems With Public Relation Pressures

By: Jennifer Hong
11/28/2011 08:12 AM ET

Netflix Problems – Netflix stock’s free fall accelerated Tuesday as the shares reached a 20-month low amid intensifying concerns about the video subscription service’s ability to overcome public relations problems and competitive pressures.

The latest in a wave of share sell-offs followed Netflix Inc.’s decision to raise $400 million from investors by issuing debt and selling 2.86 million shares of its slumping stock.

That served as a reminder that Netflix hasn’t been bringing in as much money as management anticipated from a price increase that triggered mass cancellations and damaged the company’s once-sterling brand.

Wedbush Securities analyst Michael Pachter, who had predicted Netflix’s crash when it was still a hot commodity, interpreted the fundraising as a sign of more trouble ahead.

He lowered his price target for the company’s stock from $82.50 to $45.

In a Tuesday research note, Caris & Co. analyst David Miller described the fundraising as “a rhetorical signal” that the company is still struggling to retain subscribers after a mass exodus in summer and early fall. He dropped his price target from $77 to $59.

Netflix, based in Los Gatos, Calif., described its fundraising as smart business. “It’s not that we need the money, but it’s always nice to have more money than you need,” Netflix spokesman Steve Swasey said Tuesday.

The company ended September with $366 million in cash.

Analysts also questioned the wisdom of selling 2.86 million shares of stock at $70 apiece to raise $200 million after spending nearly the same amount in the first nine months of the year to buy back nearly 900,000 shares at an average price of $218, The stock sale looks more favorable if it’s measured against all of the shares that Netflix has bought back during the past four years.

Since 2007, Netflix has spent about $1 billion to buy back nearly 23 million shares at an average price of $45 apiece.

Source: Netflix Problems