Decision of Netflix Inc. (NFLX) 's DVD to divide its operations from the service of transmission of strains of reduced emblematic mail order business and paves the way for an eventual exit, analysts said.
A pure-play business online would be smaller and faster growth, more freedom to experiment, said George Askew, an analyst at Stifel Nicolaus & Co. in Baltimore.
"The separation of the transmission line and DVD will be the stage for the division or the sale of the DVD business in the future," said Askew, who has a "hold" rating on the shares.
Netflix has dropped 31 percent in the last three trading days as investors react to cuts in Los Gatos, California-based forecasting firm underwriting and business plans to separate DVD in the mail service called Qwikster. Netflix appears to be "actively trying to push people out" of the disc business, said Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia.
The DVD and transmission units have evolved differently, said Rich Greenfield, an analyst at BTIG LLC in New York.
"A company is global, one local," said Greenfield. "One is based on a physical medium and the other in digital. This is to align the business from top to bottom."
Netflix said it has no plans to go mail order and that the division reflects different growth trajectories. In a blog over the weekend announcing the changes, CEO Reed Hastings apologized to the guests about the handling of a change in price in July, which increased the monthly cost of 60 percent for subscribers to stream movies and DVD rentals by mail.
"It is clear from the feedback in the past two months that many members felt that it lacked respect and humility in the way they announced the separation of DVDs and streaming, and changes in prices," said Hastings.
Shares fall
Netflix fell $ 11.44, or 7.4 percent, to $ 143.75 yesterday in Nasdaq Stock Market. The shares have fallen 18 percent this year after more than three times in 2010 and nearly double in 2009.
Not everyone expects a sale. Wible, an analyst at Janney Montgomery, puts the odds of a sale or spin-off in less than 50 percent due to the difficulty of finding a buyer or investors who want shares in a DVD rental by mail.
The mail order business is worth eight to 10 times earnings, or about $ 20 per share Netflix said Wible, who has a sell recommendation long on stocks.
"I think you'd find a great deal of skepticism, as the Postal Service seeking an initial public offering at this time," said Wible. "There are issues that will only get worse."
Hastings wants to accelerate the migration of consumers from the rental of physical discs for transmission of films and television programs. About 12 million 25 million Netflix customers, in addition to using both mail and streaming service.
Like music, like the DVD?
Netflix CEO also suggested that the mail order business, while shrinking, has a long career ahead. In a July conference call, it is estimated that the DVD business can decrease by 10 percent a year.
"What we do know is that we will maximize every opportunity is there," said Hastings on July 25.
Netflix cut its forecast for the third quarter of subscribers September 15, two weeks after the price change went into effect. The company cut its national estimate of 2.2 million DVD subscribers only 3 million dollars and said the U.S. streaming users only amount to 9.8 million, down from 10 million seen before.
With the split, subscribers who wish to remain customers of both companies will have to use different websites to each. Qwikster, which plans to offer video game rentals, also priced separately.
11 years ago
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