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Netflix Analyst: ‘I’ve Never Seen a Company Behave This Randomly’ (Updated)

Wall Street is still down on the rental giant after it kills plans to spin off its DVD-by-mail business

(Updated: 2:14 p.m. PST)

Netflix claims it knows it messed up by trying to spin off its DVD-by-mail business, but it will take more than an apology to win back Wall Street.

Netflix’s share price jumped briefly on its announcement Monday that it would abort its much-maligned new DVD service Qwikster before it even formally launched, but those gains were short-lived: the stock closed down 4.77 percent to $111.62.

Analysts, meanwhile, were shaking their heads at the ongoing fallout from the movie rental giant’s decision to raise prices and then separate its DVD and streaming businesses.

“The company has been under tremendous pressure to raise more money and it’s led to a daisy chain of bad decisions,” Tony Wible, an analyst at Janney Montgomery Scott, told TheWrap. “The subscriber defections were much worse than they ever thought.”

Also read: Netflix Blinks: Abandons Separate Qwikster Service

“I’ve never seen a company behave this randomly,” Michael Pachter, an analyst at Wedbush Securities, told TheWrap. “Reed Hastings is a smart man, so there’s a method to this, but the method fell apart.”

A spokesperson acknowledged that the company misunderstood its customer’s tolerance for change.

“We underestimated the ongoing appeal of one single website and one account,” Steve Swasey, a spokesperson for Netflix, told TheWrap. “We moved too fast.”

CEO Reed Hastings announced in a blog post that there would be no more changes, but analysts are still left trying to drum up the rationale for a series of dizzying overhauls to pricing and services that turned one of the country’s most beloved brands into one of its most reviled in mere months.

Also read: Netflix's DVD Service's Twitter Foul: How a Pot Loving Profile Is Beating Qwikster

Netflix's share price has lost more than half its value in the four months since it announced it was raising prices on its most popular subscription plan by as much as 60 percent. It last traded at $300 in mid-July, two days after it announced the price hike.

Pachter believes that the company’s erratic behavior — a lead-footed price hike, followed by the launch and shuttering of Qwikster in a matter of weeks — is evidence that it was prepping for a possible sale to Amazon. Amazon has been ratcheting up its streaming offerings over the past year, making Netflix an attractive target. 

So quickly did Netflix unveil Qwikster that it didn't even bother to make sure the Twitter handle for the brand was available. That its owner turned out to be a pot-loving and profane Tweeter by the name of Jason Castillo only added to the public relations nightmare. 

Likewise, Netflix’s decision to abandon Qwikster and resuscitate its falling stock price might indicate that a sale to Amazon is off the table.

“They must have had an offer from Amazon, but the hemorrhaging was worse than expected and Amazon backed down,” Pachter said.

Swasey said he would not comment on a possible sale, labeling it “speculation.”

Netflix’s decision to reverse courses on Qwikster doesn’t solve its underlying problem: Analysts maintain that the economics of its business is no longer sustainable. Studios and content makers are demanding more and more money for streaming rights to their films and television shows, while the postage costs on the DVDs that Netflix mails to subscribers are also increasing.

“I think they’re going to put up a good fight,” Wible told TheWrap. “They’re going to take an axe to their cost structure and try to win back subscribers, but they’re a desperate animal and those are often the most dangerous to be around. They need to make sure they stop a downward spiral.”

For his part, Swasey denies that Netflix behaved recklessly or erratically.

“It was big, bold, strategic move, but we realized we went to fast and reversed our decision,” Swasey said. “We move quickly at Netflix.”

As Netflix and its sagging stock price illustrates, at that kind of speed, the damage is much more painful when you fall.