Analyst on Netflix: 'The More Humbled Management Team Will Be More Thoughtful'
NEW YORK - Keeping a "buy" rating on Netflix's stock, Goldman Sachs analyst Ingrid Chung said Monday that the company's decision to abandon plans to separate its DVD-by-mail from its streaming business will have positive effects on subscriber trends.
Netflix recently had announced it would create Qwikster.com as a separate destination for DVD rentals. After negative subscriber and Wall Street feedback, the company early Monday withdrew its plan, with CEO Reed Hastings saying the decision was made too quickly. Netflix's stock rose in early trading.
"While today’s retreat from separating the Web sites shows how little testing had gone into the launch of Qwikster, we believe that the more humbled management team will be more thoughtful going forward," Chung wrote in a report.
She called Monday's news "a significant positive," highlighting what she said would be "better visibility into fourth-quarter subscriber metrics." Explained Chung: had the company gone ahead and divided its services, "we believe they could have lost the majority of the 12 million hybrid subscribers, representing roughly half of U.S. subscribers, the company currently has."
Also, the reversal shows that "management is listening to its customers (finally) and working to fix its relationship with customers," Chung said.
She said she doesn't believe that Netflix was compelled to make the move because of additional subscriber losses in the last two weeks of the third quarter. "Even if there was additional churn in the third quarter, it will be more than made up for by the number of hybrid subs that will now stay with the service," she suggested.