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Fears of a coming onslaught of competition from Blockbuster, with technology giants Apple and Amazon following closely behind, sent shares in Netflix, the pioneering online video rental company, down 20 per cent in late trading on Monday.
The stock price tumble was triggered by what appeared to be a more cautious outlook from the company for the rest of this year, as well as evidence in its latest quarterly earnings that the cost of acquiring new subscribers has been rising at the same time that existing customers have become less loyal.
A 46 per cent increase in revenues in the latest quarter, to $240m, also fell slightly short of expectations, though earnings of 24 cents a share topped stock market estimates of 18 cents.
Wall Street was quick to react on Monday to hints that Netflix may be anticipating tougher times ahead, such as its decision to leave its estimate of total subscriber growth this year unchanged despite a strong second quarter.
“I don’t think it’s conservative,” said Reed Hastings, Netflix chief executive.
However, Barry McCarthy, chief financial officer, said that on at least one measure – its estimate of subscriber “churn”, or the number of customers it would lose each month – Netflix had changed course to be “less aggressive” than in the past.
Commenting on Blockbuster’s marketing push to persuade more of its customers to rent online, Mr Hastings said: “They’ve obviously got religion that online is the path to the future.”
He added, though, that with only an estimated $1bn of the $8bn US video rental business now online, Netflix should continue to benefit from a shift to online rental.
“What it’s doing is growing the total online market,” the Netflix CEO said.