Netflix Changes Its Business Strategy Yet Again
Today was a good day for the majority of the stocks in the market as the Dow advanced 330 points. I do not normally pay attention to the day to day movements of the market as a whole except when searching for potential stocks that are trading at discounted prices. While most of the stocks were advancing, there was one major company that saw its shares get pummeled again.
Netflix Business Model
That company was Netflix (NFLX). Just as it appeared that the stock was finally settling, the company made another boneheaded announcement. Netflix has decided to cancel its plans to divide its DVD by mail service and its streaming content service onto two different websites. The company will now offer both services on the main Netflix site.
After announcing the decision, the stock plunged 5% and is trading at $110 per share. The stock had reached a new 52 week low of $107 per share before rebounding slightly. The move to cancel the two website business model might be a smarter business decision but it makes Netflix management look incompetent. This is surprising considering how much success the company had in its early years.
Netflix now has a perception problem. Investors perceive that the company has no confidence in its long term business strategy. The company has made a bunch of puzzling decisions over the past month only to back away from them a few weeks later. The botched price increase rollout and the poor execution of its new streaming content service are not good news for investors. Even the new company name Qwikster just seemed to be something that was quickly thrown together.
The Netflix management team does not seem to now what they want the company to be. Netflix management seems to be desperate and appears to be making a bunch of rash decisions. This should be concerning to investors because it is hard to have confidence in a management team that seems to keep changing directions every few weeks. Add in the fact that the company does not own the content it distributes and you can see why Netflix is not a great long term investment.
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