Netflix spooks Street with sputtering user growth

Mon Apr 23, 2012 9:02pm EDT
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By Lisa Richwine

LOS ANGELES (Reuters) - Video rental company Netflix Inc projected slower subscriber growth this quarter for its key U.S. video-streaming service, disappointing investors and sending its shares down 17 percent after hours.

While Netflix reported a first-quarter loss that was not as steep as Wall Street projected, it warned that domestic second-quarter streaming additions would fall below the level during the same period in 2010.

The stock plunged 17 percent to $84.85 in after-hours trading, down from a close at $101.84 on Nasdaq.

Despite predicting total U.S. streaming-subscriber additions in 2012 would reach about 7 million, "about the same as in 2010," the nearer-term guidance rattled investors, said Wedbush Securities analyst Michael Pachter.

Adding customers to the instant-streaming business is crucial to the company's future as it moves away from mailing DVDs in its signature red envelopes. And sustaining strong growth in users will help offset rising costs as Netflix writes bigger checks for new movies and TV shows.

"They are giving a signal to the Street their growth story is over," said Pachter, who rates Netflix a "sell."

Netflix said seasonal variations would affect second-quarter customer growth. In a letter to shareholders, CEO Reed Hastings and CFO David Wells said they saw "nothing new or particularly concerning" about customer viewing, acquisition and retention. "All are healthy," they said.

"Our gross additions are strong. Our retention is strong. We are feeling good about the year," Hastings said in an interview with Reuters.   Continued...

A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith