Why Netflix Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online movie giant Netflix (Nasdaq: NFLX  ) were getting two thumbs down from investors today, as they fell as much as 11% in intraday trading.

So what: Terrible is the burn of bloodthirsty competition! Today, Amazon.com (Nasdaq: AMZN  ) , which has been building a competitive streaming-movie service for its Amazon Prime customers, announced a new deal with studio partnership Epix that brings in movies such as Iron Man 2, True Grit, and Warrior (it also adds Expendables, but I consider that a value detraction). Investors sold off Netflix shares as they viewed this as a move that may persuade some Netflix subscribers to opt for Amazon's service. The pessimism did, however, cool through the day, and shares closed with a loss closer to 6%.

Now what: Anecdotally, I logged on to Amazon this morning and read the letter on the front page. As a Prime subscriber, my first thought was, "Wow, what do I need Netflix for now?" As I noted, this is exactly the kind of reaction that Netflix investors are concerned about. Of course, in my case my next thought was "Oh, right, Arrested Development." The return of that cult-hit TV show as a Netflix exclusive is one big win the company has in its corner. With competition heating up, it may be creative moves like that that will allow Netflix to hang on to its customers.

That said, this is a big deal for Amazon's Prime, and there's good reason for Netflix investors to be concerned today.

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Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On September 04, 2012, at 5:24 PM, rhealth wrote:

    "Wow, what do I need Netflix for now?"

    A usable interface. It is beyond me why a company with so much innovation and success as Amazon can't get a workable interface in there. Am I the only one having a hard time with this?

    Brett- who also considers Expendables a value detraction.

  • Report this Comment On September 04, 2012, at 6:47 PM, TMFHelloNewman wrote:

    The Expendables was bad. And that's okay. What's confusing is why in the world the actors decided to make a second one...

    I guess Statham needs to pay the mortgage.

  • Report this Comment On September 04, 2012, at 8:27 PM, jordanwi wrote:

    I am in the EXACT same boat when I think of Netflix. I have watched my shares devalue for the last couple months, and I remind myself that Arrested Development is on the horizon. I may be holding NFLX only out of my love for Arrested Development. It's been an extremely costly TV show for me to date.

    The thing that I grapple with versus Amazon is whether Prime users will cut Netflix. $7 a month is so cheap; I wonder if one would even bother cutting it, unless it's out of principle (re: price hike).

  • Report this Comment On September 04, 2012, at 9:34 PM, ravens9111 wrote:

    Amazon Prime is so much more than just streaming video. You pay about $79 a year for free shipping and special deals on certain products. Then on top of that, you can use kindle books as a library at no extra charge. Sorry NFLX, but if AMZN gets more content, as I suspect they will, there will be no reason to pay for a monthly subscription considering the content isn't that great to begin with.

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