Netflix shares open down 23% after disappointing subscriber figures

Netflix's subscriber growth is a real concern: Pro

Investors in Netflix Inc will need patience to reap the rewards of a costly push into original content and international markets, analysts said, as slower subscription growth triggered a sharp drop in the company's stock.

Netflix shares opened down 23 percent after fewer new subscribers than the company had forecast signed up to its video-streaming services in the quarter ended September.

At least 19 brokerages cut their price targets on the stock by as much as $150 to a low of $300. The stock closed at $448.59 on Wednesday.

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Netflix, whose original shows include "House of Cards" and "Orange is the New Black", plans to spend $8.9 billion on the acquisition of new content in the next few years.

The company is financing four Adam Sandler movies and a sequel to martial-arts drama "Crouching Tiger, Hidden Dragon."

J.P. Morgan Securities analysts said original content would help to "reinvigorate" subscription growth at home and overseas.

Of more immediate concern, however, were the disappointing third-quarter subscriber numbers. Netflix lured 3.02 million new streaming customers globally versus the 3.69 million it had projected in July.

"(Subscription) growth and content cost trends both indicate a more difficult phase could lie ahead," Macquarie analysts wrote.

In May, Netflix raised monthly subscription fees for its most popular video-streaming plan by $1 for new customers in the United States, saying the higher price would allow it to spend more on new movies and TV shows.

"We believe the subscriber miss was largely due to price hikes for new subscribers, the effect of which was masked in the prior quarter with the positive reception to season two of 'Orange is the New Black'," BMO Capital Markets analyst Edward Williams wrote.

Netflix has a presence in nearly 50 countries and has grown its subscriber base fast. More than a quarter of its 53 million customers are now outside the United States.

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The company is looking to expand its international business to reach new viewers and increase its buying clout with content providers. But each new country launch entails hefty investments in marketing and local content rights.

"We expect new international markets will become profitable eventually like earlier markets have, but this will require time and patience that some investors may not have, given high valuation and lower growth outlook," Bank of America Merrill Lynch analysts wrote.

Netflix's stock trades at about 76 times forward earnings and scores just 5 out of 100 on the Thomson Reuters StarMine Relative Valuation model. The lower the score, the more expensive the stock.

As of Wednesday's close, seven analysts rated the stock a "strong buy" and 13 a "buy," according to StarMine. Sixteen analysts had a "hold" rating on the stock, one had a "sell" and three a "strong sell."

—Reuters with