CHICAGO (MarketWatch) -- Netflix Inc. earnings jumped 63% in the third-quarter despite controversial pricing changes, but a weak forecast for the fourth quarter sparked an after-hours selloff that pushed the stock to a new low.
In after-hours trading on Monday, Netflix NFLX, +5.67% shares plunged more than 27% to $86.50.
The stock has not traded below the $100 mark since August of last year and had peaked near the $300 mark as recently as July.
“What we have here is one major reset,” said Mark Mahaney, analyst at Citigroup, in a note to clients.
Mahaney said the outlook was “particularly disturbing” in its revelation of a decline in domestic streaming subscribers compared to the third quarter, which he said seems to indicate “both major mis-execution and likely competitive pressures.”
Netflix said that earnings in the fourth quarter would be in the range of 36 cents to 70 cents a share, on revenue of $816 million to $845 million. Analysts polled by FactSet Research were expecting a profit of $1.05 a share on revenue of $923.7 million.
The disappointing forecast reflects greater-than-expected subscriber cancellations, for DVD-and-streaming plans, DVD-only and streaming-only subscriptions, Netflix said.
“What we are seeing is a second wave of cancellations from the pricing increase,” said Chief Executive Reed Hastings, during a conference call with analysts.
“The first wave was in July, when we had the announcement. The second wave has been in September and October, as people become more aware of the price increase, and they change their plan or cancel. That wave has been declining very steadily over the past couple of weeks. So we have substantially less weekly cancels now that we did just three or four weeks ago,” he said.
In streaming, net additions are seen to be down in October, about flat next month, and “strongly positive in December,” with the result that streaming additions will be slightly down for the quarter, Netflix said.
Hastings said prediction for an uptick in December is based upon what Netflix saw last year.
At the end of the December period, Netflix expects about to have about 20.8 million streaming customers, down from 21.4 million in the third quarter.
The company also plans to double the total amount spent on content in 2012, about on par with Time Warner Inc.’s TWX, +1.05% HBO unit. Hastings said Netflix expects its rate of streaming subscriber growth to outpace those costs.
Netflix said its third-quarter profit rose 63% from the same period last year, on a 42% increase in subscribers to its video rental services, topping most analyst estimates.
Net income for the quarter was $62 million, or $1.16 cents a share, compared with a profit of $38 million, or 70 cents a share, in the year-ago period.
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Revenue rose 49% to $822 million. Analysts polled by FactSet Research were expecting a profit of 96 cents a share on revenue of $812.5 million.
In July, Netflix announced that it would raise the price for a combination DVD-and-streaming video plan to $15.98 from $9.99 a month – a 60% hike.
Chief Executive Reed Hastings said he expected some negative reaction, but believed the popularity of the company’s streaming-only option would allow it to increase the fee for the combo plan.
However, consumers were angrier than Netflix anticipated. In mid-September, it warned that it would generate about 1 million fewer subscribers than it expected when it gave its initial forecast in July. The shares plunged 19% on Sept. 15, the day of that warning.
In September, Netflix said it would spin off its DVD unit into a separate entity called Qwikster while retaining the Netflix brand for the streaming product, a move many analysts found baffling enough to be compared with Coca-Cola’s New Coke debacle of the 1980s.
On Oct. 10, Netflix reconsidered the move, and said the DVD and streaming business would remain together under the original brand.
