Netflix (NFLX) stock is lower today after about a quarter of its market cap was wiped out Thursday. The company blamed recent price increases on a miss in subscriber growth in the third quarter. Netflix added just 980,000 domestic streaming users versus its target of 1.33 million. Additionally, the company is predicting the slowdown will continue in the fourth quarter.
In the video above, Yahoo Finance Editor-in-Chief Aaron Task spoke with Business Insider CEO Henry Blodget about Netflix’s recent miss and the outlook for the industry. Blodget says the stock was extremely expensive but he is still bullish. He points outs that the company is "in a great position for what is happening in the TV industry. Everything is moving to internet distribution," he says. "They are poised to capture that.”
Back in May, Netflix increased prices by a $1 more a month to $8.99 for new subscribers. This is the first hike since 2011. Blodget thinks the real problem is not the price increase but market saturation. A comScore survey shows about 4 in 10 households in the U.S. currently subscribe to a digital video subscription service. And half of 18-34 year olds already have Netflix. According to SNL Kagan, Netflix is currently in 53 million households compared to 30.4 million for HBO. Blodget says the company is too ambitious in its plans to be in 100 million households.
Speaking of HBO, Time Warner (TWX) announced on Wednesday it would sell an Internet-only offering for HBOGo that would not require cable box subscriptions. CBS (CBS) was close behind, announcing a new subscription Internet streaming service that allows to people to watch its live television programming and its shows without paying for a traditional TV signup. The company will charge $5.99 a month for the new “CBS All Access” service. This is in addition to Amazon (AMZN) and Hulu, both of which offer on-demand progamming that can be watched anytime.
Netflix CEO Reed Hastings was on CNBC Thursday and brushed off concerns about the HBO news. “We compete with them like baseball and football compete," he said. "People really into sports watch both, and are involved in both. We have different shows.” Blodget points out this is the way the industry is headed. The model where cable customers subscribe to 500 channels whether they watch them or not is over. He predicts, “People will increasingly build a la carte menus. We’ll have the ability over time increasingly to focus on what people actually want to watch. And those producers are the ones who will do very well."
Long term, Blodget says the valuation will eventually work itself out, especially if the company’s plan to expand overseas pays off. Plus he’s confident that Hastings plans to come up with more original content such as the hit shows “Orange is the New Black” and “House of Cards” will help Netflix increase its subscribers over time. Right now, Blodget forecasts the company will trade at 15 times earnings versus its current earnings multiple of 90.