By Brett Arends, MarketWatch
As recently as July 25, the company was expecting to have 25 million customers by the end of this month. Now it expects 24 million. That will actually be about 600,000 fewer than it had in June.
Netflix stock crashed last week to just $155. As recently as July it had hit $299.
Late Sunday, CEO Reed Hastings, while unveiling a more formal separation of streaming from DVD-by-mail subscriptions, issued an apology and explanation to Netflix's disgruntled clientele
But Netflix's biggest problem isn't a simple management error. It's the marketplace.
Netflix prospered in a pre-streaming world. It bought DVDs and then rented them out, over and over again. It was a genius at fulfillment getting the films back, and sending out new ones, quickly and easily. And it was, after its earliest days, the only player in town.
The future lies in streaming. In this era, Netflix's core strengths the DVD library and its logistics are irrelevant. And it's up against massive companies, including the likes of Apple and Amazon and the TV and movie studios. Every home finds itself in the same situation as ours. You have tons of options for getting movies and TV over the Internet or on TV.
Where is the competitive advantage? Where is the moat around the business?
Even before last week, Netflix's stock had been pounded after talks with Starz Entertainment broke down Sept. 1. Starz supplied Netflix with movies from the likes of Disney /quotes/zigman/245568/quotes/nls/dis DIS -1.98% . The breakdown in talks shows very clearly where power now resides: with those who control the content.
I wish Netflix luck competition is good for consumers but I wouldn't own this stock. It's still trading at 26 times forecast earnings assuming those forecasts don't come down and three times sales. The company is valued at $330 per subscriber. In a free and competitive market, this should be a narrow-margin industry. Any profits ought to accrue to someone who makes a hit program.