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CNBC: Netflix Confirms Site Outage; Shares Hit 52-Week Low


Netflix, the popular online movie rental company, confirmed to CNBC that the company's Web site has been down for several hours because of an "unanticipated outage" that occurred some time last night.

Company spokesman Steve Swasey initially said engineers were working to get the site back up by 12 pm New York time. The company pushed back its estimate for availability several times over the course of the day, and the site was still down as of 5:30 pm New York time.

Swasey would not characterize the outage beyond calling it "unanticipated," and would not provide any details as to its cause.

CNBC Silicon Valley Bureau Chief Jim Goldman, who broke the story, said an outage of this magnitude could not have come at a worse time for the company.

"Netflix shares got hammered on its earnings news from yesterday; and got hit even harder after announcing plans to cut some of its key subscription rates. That was good news for consumers, but bad news for shareholders who might see a dramatic reduction in revenue," Goldman said.

"But an outage for a company that does all its business online is adding insult to injury, especially with rival Blockbuster running ads about how it offers both an online and brick-and-mortar retail strategy for consumers," he said.

Shares Spiral

Netflix shares plunged to a 52-week low Tuesday after the online DVD rental leader reported the first quarterly customer losses in its history and dimmed its earnings outlook for the rest of the year.

The Los Gatos-based company is relinquishing some of its profits by lowering prices in an attempt to regain market share from rival Blockbuster. That decision led to further drubbing of its already battered stock, which has plunged by nearly 40 percent so far this year.

The shares dropped as low as $15.62 early Tuesday before bouncing back to more than $16. The stock plummeted by 12 percent Monday, driven by price cuts that Netflix announced Sunday.

Hoping to retain more of its current customers while enticing new subscribers, Netflix is decreasing monthly fees by $1 on its two most popular plans to match Blockbuster's prices for comparable Internet-only services. The new rates take effect Tuesday.

Netflix has been having trouble signing up subscribers since late last year, when Blockbuster began giving its online customers the option of swapping DVDs at one of its stores instead of relying on the mail and waiting at least two days for another movie.

"We are in a very competitive, large battle," Reed Hastings, Netflix's chief executive officer, said in an interview Monday after the company released its second-quarter earnings. "But we feel like we are still in a great position."

Wedbush Morgan Securities analyst Michael Pachter believes Blockbuster may have exposed Netflix's Achilles' heel by aggressively promoting the convenience of Blockbuster stores to build its online service.

"Netflix has a broken model," Pachter said. "They aren't used to competition and now someone is competing against them very effectively."

Netflix ended June with 6.74 million subscribers, a decrease of 55,000 customers from April. It marked the first time Netflix's total subscribers have declined from one quarter to the next since the service began renting DVDs through its Web site in 1999.

Blockbuster is expected to update its online subscriber count Thursday when it is scheduled to release its second-quarter results. The Dallas-based company ended March with 3 million subscribers after outstripping Netflix's customer growth for two consecutive quarters.

The gains haven't helped Blockbuster financially. The company lost $49 million in the first quarter. Blockbuster last month indicated it might try to reverse that trend by raising the prices of its online service. If that happens, Netflix's earnings during the second half of this year might not shrink as much as management currently expects.

Assuming Blockbuster holds steady, Netflix expects both its third-quarter and fourth-quarter performance to lag last year's levels. Management expects its full-year profit to range from $42.4 million to $52.4 million, down from an April forecast of $55 million to $60 million. Netflix earned $35.4 million through the first half of this year.

Netflix's earnings may fall even further next year as the company continues to compete for subscribers and invests in new technology to deliver movies over high-speed Internet connections so they can be watched on television sets, Chief Financial Officer Barry McCarthy told analysts Monday.

Netflix fared well financially in the second quarter, earning $26.6 million, or 37 cents per share. That represented a 50 percent increase from net income of $17 million, or 25 cents per share at the same time last year.

Revenue totaled $303.7 million, a 27 percent improvement from $239.4 million last year.

If not for a $4.1 million payment from Blockbuster to settle a patent infringement lawsuit, Netflix said it would have earned 31 cents per share. That was still well above the average earnings estimate of 23 cents per share among analysts surveyed by Thomson Financial.

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