After Netflix announced first to raise prices and then create Qwikster they saw a massive drop in their stock price. We are talking about over 100% drop from its high of ~290 to around 104 in just three months. A few days after the announcement to kill Qwikster, I wrote a fairly comprehensive blog post analyzing how the change in net sentiment seemed to correlate with the drop in Netflix stock price.
Click here for a link to the blogpost
Yesterday Netflix announced its earnings. The news was positive in that they beat estimates...
"From a financial perspective, Netflix did better than analysts expected in the July-September period.
The company earned $62.5 million, or $1.16, per share, in the third quarter. That compared to income of $38 million, or 70 cents per share, at the same time last year. The performance topped the average earnings estimate of 96 cents per share among analysts polled by FactSet. Netflix's revenue climbed 49 percent from the same time last year to nearly $822 million -- about $9 million above analyst estimates."
What is amazing is the other "consumer part" of their news really hurt them.
"The company, which is based in Los Gatos, ended September with 23.8 million U.S. subscribers, down about 800,000 from June. Netflix had predicted it would lose about 600,000 U.S. subscribers in a forecast released last month.Management expects to gain U.S. subscribers in the current quarter, although Netflix didn't set a specific target. But a substantial number of Netflix's customers are expected to choose between renting DVDs through the mail, or streaming Internet video, instead of paying for both services."
And while this loss of customers will translate into lost sales, which is financial, they did beat estimates. And being that they gave no guidance of how their subscribers will increase, one can see strategically how their concept works. They are trying (as they have overtly stated) to increase the rate of revenue so they can provide a better more comprehensive selection of movies (as licensing fees are higher for better content). Everyone would agree, their execution has been flawed and the shock their poor roll out has caused is the root of their issues. But the jury is still out on how their transition will ultimately go. Is their CEO still ahead of the curve? I would argue again...the risk the Netflix faces is now based on their brand perception which continues to weaken every week. Even if they do have the best selection, will the sour taste in their consumers' mouths taste be so bad they can't come back as the service improves. I would suspect even if it does, they have serious work to do on their brand image with consumers because their slow return to Netflix as their service improves could prove catalytic as they miss numbers because of this "consumer effect".
What does this mean? Angry and untrusting consumers who are waiting for the next price increase will be delayed in their return no matter how great Netflix is. As they delay, Netflix doesn't hit its numbers and the financial sector questions their business and so on. The consumer uptick in subscription might never recover if it doesn't improve things soon. I am not a Netflix subscriber (late adopter I guess) and the difference in price from 10 to 16 dollars seems pretty reasonable to me. I pay gobs of money for Comcast, and I hate it, but I am still a little lazy to create a multi-product package for my TV that can save you money overall. We will see.
On to the analysis. I have updated and extended my "coverage' of the Netflix brand collapse. When we last left off, I covered and analyzed Netflix as of October 17th, 2011. I looked at the full year, the period before the price hike announcement and the period after the price hike announcement. We saw some major changes in how consumer perceived this brand and even saw some qualitative correlation to the stock price changes that suggest some predictive link between the change in sentiment versus the change in stock price.
Again...the blogpost link for part one is here ====> Netflix Part 1
Let's look at the net sentiment over time chart since October 1st. This will encompass both the earnings announcement AND the announcement to kill Qwikster.
We see from the analysis that the net sentiment for Netflix is actually climbing after the announcement and the spike around the announcement didn't hurt the brand in anyway and actually seemed to help. But in the last few days, we can see the effect of the announcement. The net sentiment dropped from about 50 to -8. A major drop. Below are some closer looks at the sentiment charts zoomed in for the last few days.
We see the net sentiment going down dramatically yesterday and even more this morning. The top chart goes through yesterday and the bottom includes what has been collected thus far today. This is a major drop in the net sentiment. And it dropped as the day wore on yesterday as the announcement came out. The announcement came out at 1:05PM pacific time towards the end of the Wall Street Day.
But if we look at the changes in the data for the last 3 months (which includes the price hike announcement) versus the last 3 days, the results are quite telling.
Note: In my last post, I ended on 10/17/11. Our data is a 12 month rolling history, so I have updated the numbers (mostly for the 12 month ratios) to reflect the most up to date changes. Last 3 months tracks from the announcement to today (so a little bit longer than 3 months)
Over the last 12 months the ratio of positive sentiment was 2.78. This means for for every 2.78 positive expressions of sentiment (regardless of intensity) there was only 1 negative expression. In the last three months that ratio dropped to 1.86. This is a 33% percent decrease in the ratio of positive to negative expressions of emotion. And when looking at the LAST 3 days? That ratio has dropped below 1 to 0.85 or another 50% decrease again. Netflix in the last three days is in a situation where the number of negative expression of emotion actually outweigh the positives. The normal ratio in social media tends to be higher than 1 overall. People tend to express more positive sentiment online then negative. This is an amazing social media development.
How does this all link to the stock price?
Again, I have created some curves that trend change in sentiment to change in stock price. They are below.
You will again see that the stock trends over the last 30 days seem to follow the change of sentiment. The sentiment drop yesterday could easily predict the drop today. It just continues to show that change in sentiment seems to correlate with stock price. Netflix didn't just throw gasoline on the fire...the fire ran up their arm and they are in flames.
Did they damage their brand? Let's look more closely. I have created a brand passion index on the brand with some key dates. See below
Look what happened to the brand passion in the last 30 days. It actually improved versus the time period of 7/10/11 to 10/10/11. In fact, the last 30 days includes all the negatives we are talking about today. But what is troubling is the bubble created with the data from the last 3 days. Look how low the brand has sunk using only this data. This is really poor. If we zoom in on the likes and dislikes for the last 30 days and the last 3 days, we will see some thing very troubling.
Let's look at the last 30 days.
You will see that over the last 30 days there is little change from the last 3 months. People are talking about the price hike, the death of qwikster, and that they are leaving. What should be looked at more specifically is the two pieces of pie lose subsriber and lose customer. Over the last 30 days the percentage of people falling into these categories is 34%. We do see the stock mentioned at 5%. In general you are seeing what you would expect. Consumers are not happy with Netflix moves since their poor moves after July 11th, 2011.
Let's look at the last 3 days. What we see is pretty frightening...
The likes over the last 3 days are the usual banter about Netflix. People like the service. They think it is a great product. These are the normal chatter about what people like about Netflix. There is nothing that interesting based on other slices I have seen around what people like. There was a huge uptick happiness around killing qwikster, but otherwise mundane likes...
If we move to the dislikes, however, we see more changes even versus the last 30 days. Now we are seeing even stronger language around the Netflix brand. 60% now refers to either lose more customers or lose subscribers. We know this is mostly due to the announcement, but remember this chart looks at expression of emotion. People are expressing opinions about these two facets and regardless, it continues to grow. Another very telling piece of data that has grown is we are now seeing expressions around the brand itself. Lose subscriber and Lose customers are about the product. Now we see lose luster and destroy brand faster as two groupings. In fact, these two groups make up 14% of the data. People are starting to express direct emotions towards the Netflix brand itself.
The hierarchy of Netflix downfall has followed the following trail...
1. They didn't like the "product" price hike
2. They didn't like the "product" complexity (qwikster)
3. People expressing they don't want to buy the "product" has increased to 60% from 30%.
4. People are directly expressing emotions about the "brand" itself.
This means that Netflix may have jumped the shark. Could they rebound? Sure, great products create great demand, but they have surely opened themselves up from a brand perspective. People don't trust the brand now and it will be telling to watch whether or not this grows with time. Getting people to trust Netflix is going to take $$$ and resources, because the brand is now damaged. It is uncertain how much, but there is evidence that it is damaged.
The ratios and trends from the last 3 days onward need to be monitored to see if this trend reverses itself. If it continues, what once was a great idea could go the way of the dinosaurs into the land of what not to do case studies.
The jury is now out on netflix and you need to figure out a way to put out the fire that is is now engulfing your brand's body. I would say in the infamous words of that old dick van dyke educational video on fire prevention it is time to "stop, drop and roll".
I couldn't find the actual spot...but he did lots of them
Dick Van Dyke the detector