Netflix Poised to Plunge

One of the of the things about having a blog is that I can’t hide my awful market calls. A little over a year ago, I called Netflix ($NFLX) “the absolute worst stock to buy right now.” I even got a snarky email from the CEO. The stock has jumped about $200 since then.

Sure, it’s embarrassing. But I’ve consistently believed that Netflix was absurdly overpriced. As it climbed higher, I thought it was just becoming even more and more overpriced.

Netflix just reported second-quarter earnings of $1.26 per share which was 14 cents more than expectations. Yet NFLX said to expect Q3 sales of $780 million to $805 million where Wall Street was expecting $845.3 million. The early indications are that the stock will open down about $25 per share.

I think Netflix’s decision to raise its prices has struck a nerve among its customers and some investors. Just as the stock’s price rise was in no way close to the earnings increase, so too is today’s sell-out matched by the poor sales forecast. When a stock plunges 10% on news that really isn’t that bad, you know something was wrong to begin with.

Posted by on July 26th, 2011 at 9:28 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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