Netflix's Stock Drops as Company Warns of Loss for 2012

7:11 AM PST 11/22/2011 by Georg Szalai
Ryan Anson/AFP/Getty Images

UPDATED: The streaming video provider's Monday news that it would raise $400 million in capital and report a 2012 loss led analysts to speak of 10 percent dilution to shareholders, a "big comeuppance" and a "credibility gap."

NEW YORK - Shares of Netflix fell below the $70 mark and hit a new 52-week low in early Tuesday trading following late Monday news that it was raising $400 million amid rising content costs, but the stock steadied a bit and was down only slightly as of 10am ET.

The stock dropped more than 6 percent early in Tuesday's trading session as some analysts highlighted that in between regulatory filings announcing agreements to raise $200 million each in convertible debt and common equity, Netflix had also acknowledged late Monday that it would lose money in 2012.

Previously, the firm had said that it would not be profitable in the early quarters of next year, but had not given full-year guidance.

Lazard Capital Markets analyst Barton Crockett in a report Tuesday spoke of a "big comeuppance" for Netflix. Reiterating his "neutral" rating on the stock, he said a "credibility gap keeps us from calling [the] capital raise a bottom."

Wedbush Securities analyst Michael Pachter cut his price target on the stock from $82.50 to $45.

And Credit Suisse analyst John Blackledge said "total dilution to shareholders is about 10 percent." He added: "This may place some near-term pressure on the stock."

But he was positive on the benefits of the capital raise, saying it "strengthens Netflix's balance sheet and improves its financial flexibility as Netflix remains in a period of transition."

In another more upbeat note, Barclays Capital analyst Anthony DiClemente said the new funding was "a vote of confidence from two investors" - namely Technology Crossover Ventures and T. Rowe Price, which participated in the new capital initiatives. Still, DiClemente lowered his price target on Netflix from $115 to $105.

As of 10am ET on Tuesday, Netflix's stock was down 2 percent at $73 after earlier going as low as $69, a new 52-week low. It closed down 5.4 percent at $70.45. That price was way below a 52-week high of $304.79, which it had hit only in mid-July.

"As a result of the relatively flat consolidated revenues and previously announced increased investment in our international segment, we expect to incur consolidated net losses for the year ending Dec. 31, 2012," Netflix said in a regulatory filing about the new financing. "We cannot assure you that our domestic streaming cancellations will continue to decline or that gross new additions will remain strong. If we are unable to repair the damage to our brand and reverse negative subscriber growth, our business, results of operations, including cash flows, and financial condition will continue to be adversely affected."

A spokesman had highlighted late Monday that the new financing gives the company more financial flexibility that it may not even need.
 
And CFO David Wells said in a press release announcing the capital raising initiatives late Monday: "We have strengthened our balance sheet and remain focused on growing our streaming subscriptions and returning to global profitability after our launch of the U.K. in 2012.”

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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