Netflix Inc. (NASDAQ: NFLX) Chief Executive Officer Reed Hastings will receive $1.5 million less in stock option allowance for next year, a corporate move that comes on the heels of a horrible stock performance for Netflix in 2011. The CEO will retain his $500,000 annual base salary according to regulatory documents that were filed Thursday.
The 2011 calendar year provided a harsh environment for the online video streaming company, which once held a dominant industry position in the United States market. Netflix has a subscriber base of over 20 million customers who stream online content from personal computers and order newly-released movie titles on DVDs via the firm’s mail order business.
The Rise and Fall of Netflix
In mid-July Netflix’s stock price peaked at just over $300 per share, capping off a meteoric rise from its humble beginnings of $5.00 per share nearly a decade ago. The video streaming service had earned a dominant market position in the United States and convinced over 20 million Americans to sign-up for its subscription service at a time when free online video streaming services were rampant.
Then, the company announced it was raising its basic subscription price from $10 to $16 per month to cover expenses related to DVD shipment, citing an average cost $0.75 per shipped disc. Customers – some who had been loyal Netflix streamers for years – reacted negatively, taking to online forums and social media to express their dismay. By the end of July, the rout was on. Netflix had lost approximately 13% of its market value from its July 14th high, and plummeted another 10 percent during August as subscribers began leaving the company in droves.
In September, IRA.com reported that Netflix had lowered its Q3 FY2011 subscriber forecast from 26 million to 25 million, resulting in a one-day slide of 19% in the company’s stock price.
Exclusive Content Deal with DreamWorks
IRA.com followed up on this story in early October, when Netflix signed an exclusive content deal with DreamWorks in which it obtained sole rights to stream the movie studio’s newly released content beginning in 2013. However, that may have been too little to late as Netflix’s price per share had already lost more than 60% from its July peak.
The move also showed how competitive the online video streaming business has become. While Netflix paid approximately $180 million for exclusive content streaming rights in 2010, that number is expected to skyrocket to $2 billion in 2012 – a two year increase of over 1,000 percent.
Two weeks after signing the deal with DreamWorks, Netflix announced that it was dropping plans to spin off its DVD rental business into a separate entity called Qwikster, resulting in yet another stock price plunge as investors viewed the company’s actions as showing lack of direction. Below is an image of Netflix’s 6 month stock chart.
What’s Next for Netflix?
The 2011 calendar year has not been kind to the once dominant video streaming company, but there are some encouraging signs for the stock now that it is priced below $75.00 per share. Netflix has a Market Capitalization of $3.81 billion and reported an EPS of $4.40 in its most recent financial statement with a Price to Earnings ratio of 16.49 as of December 24th.
While the stock has been beaten down over the last six months, the company remains a significant force in the United States with over 20 million subscribers and boasts an additional subscriber base in the Latin American market.
Netflix and Your IRA
If you had Netflix in your portfolio for the second half of 2011, then you took a significant loss on your investment. Opening an IRA can be done in a matter of minutes and IRA.com provides a number of resources to assist individuals with Finding an Advisor by region.