Netflix: The Market Punishes Stupidity - The American Spectator | USA News and Politics
Netflix: The Market Punishes Stupidity

In July, Netflix stock neared $300 per share. Then they announced a price hike, raising both their DVD-by-mail and Internet-based streaming movie service from about $10 per month to about $16 per month.

Their customers revolted, and the stock price went with them. On Monday afternoon, following the stock market close, Netflix reported their third quarter earnings along with a dismal forecast going forward. During the quarter, the company lost subscribers, down about 800,000 US subscribers in the past since June. Given that the price hike was announced in July, it is reasonable to assume most of that lost came in the past two months and is likely to continue. So far, the company has given no indication of backing off its price hike though they did give up on the idea of spinning the DVD-by-mail business off into a separate company (with the silly name “Qwikster”).

By the time you read this, Netflix stock will be trading below $80 per share, the first time the stock will trade in double digits since August, 2009 (more realistically since May, 2009 since the August price decline was just barely under $100 and very brief.)

The CEO of Netflix, Reed Hastings (who I predict will soon be unemployed, though not poor), said on Monday that his company “became a symbol of the evil, greedy corporation.” I wish he hadn’t played into that anti-business sentiment which we see in the smelly protesters around Wall Street.

Instead, he became a symbol of a bone-headed CEO who communicated arrogantly with investors and customers and raised prices by 60 percent during a very weak economy, and during a time when cable companies and Internet content-streaming companies are offering various “on demand” alternatives. It’s not that Netflix was evil, and it’s barely that they were greedy. It’s that they were stupid.

If there’s one thing the stock market does, it’s punish stupidity. Now NFLX shareholders will punish Mr. Hastings, who has precipitated a loss of over $10 billion in the company’s market value in less than five months. To be fair, the stock was (in my view) overpriced even if Hastings had not made such bad decisions. Nevertheless, without those decisions, the stock price would still likely be twice the price it will be trading at today.

Edited to update the share price of Netflix.

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