Netflix's nightmare continues

Shares slammed after streaming video company says it will raise cash, warns of 2012 loss

Those heady days in mid-July when shares of Netflix (NASDAQ: NFLX) briefly topped $300 must seem like eons ago to owners of the streaming-video company's stock.

Now, a little more than four months later, Netflix shares are struggling to stay above $70, their lowest price since March 2010.

The latest hit came Tuesday, when shares dropped as low as 5.47, or 7.3%, to 69.00 before rebounding to finish at 70.45, down 5.4% from Monday.

The catalyst for the latest stock drop was Monday's announcement that the company 1) will sell $400 million in stocks and convertible bonds, and 2) warned it expects to post a loss in 2012 because it's having trouble growing revenue while sinking money into international expansion. The last time Netflix posted an annual loss was in 2002.

Besides signaling potentially serious cash-flow issues, the move to sell more stock will make a ticker bounce-back even more unlikely in near-term. In a note to investors, Credit Suisse said Netflix shareholders will see about a 10% dilution of their holdings.

Of course, this is just the latest setback for Netflix, which was leading a charmed life until July, when it raised rates by 60%, infuriating long-term customers, triggering a subscriber exodus and starting shares on a steady decline, interrupted only by sharper declines as fallout from the company's rash decision became apparent.

After two months in denial, Netflix CEO Reed Hastings on Sept. 18 issued an apology -- not for the price hike, but for the way he communicated it. He also took the opportunity to announced that Netflix would spin off its DVD-by-mail service and rename it "Qwikster," thus requiring customers who use both Netflix services (DVD-by-mail and streaming) to maintain accounts on two different websites with two separate billing systems.

Oddly enough, creating more work for customers who were just hit with a big price hike didn't go over well, and just three weeks later Netflix dropped its Qwikster spinoff plan and announced it would no longer sell PCs (oh, wait, that second thing was announced by another stumbling company).

Netflix on Monday dismissed talk that the $400 million sale of stocks and convertible bonds indicated the company was tight on cash, but Janney Capital Markets analyst Tony Wible, quoted in the Wall Street Journal, isn't buying it:

"Investors need to ask why one of the largest subscription-based platforms in the world needs capital. The lack of profitability on almost 23 million global streaming subs suggests that this business may not be as lucrative as the bulls believe."

Don't worry, Tony. I suspect a lot of investors are asking that very question. And Hastings probably is asking when this nightmare will be over.

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