After a price restructure that raised Netflix prices by 60%, the company lost 800,000 subscribers, company CEO Reed Hastings admitted in a written statement. The backlash by consumers was apparently far worse than the company had ever expected. But, perhaps the biggest losers here are the stock holders for Netflix stock. According to an overnight trading report the stock is now trading under 100, when it peaked at 324 before the price hikes were announced. This also illustrates why investment in stocks is such a high risk. Investors paid 324 for the company stock, which has now lost value, yet the company still holds this higher valued investment. Further, while the number of subscribers has declined to 23.8 million, from 24. 6, some subscribers are buying both $7.99 a month services from the company, so it’s certainly mathematically possible that the company actually has higher revenues than ever before. Yet the stock market value is way down.
While releasing the claimed bad news, the company is actually planning to expand their services to the UK and Ireland soon.
If anything this entire story should make any person wary of the dangers of investing in Wall Street. Companies can use your money legally after a stock bottoms out, and you have no legal recourse, because it’s considered a legal risk. If some guy on the street took your money for a claimed investment, used it for himself, it would likely be a crime. Wall Street rules allow companies essentially to do the same thing legally.
Not many stocks take a 74% discount in just over three months. Netflix is one of the best examples of problems with stock valuation. or over-valuation. Stock critics are now looking carefully at the problems over at Netflix. The company still appears healthy, yet the stock has lost so much value. It’s problems like this that make investors wary to buy stocks.