September's Almost Over for Netflix

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If there's any silver lining for Netflix (NAS: NFLX) , it's that October's just a handful of hours away.

September has been brutal for the roughed-up video giant. The stock has shed 52% of its value -- and today is off to another bad start.

A lot of things have gone wrong for Netflix this month, but I may as well own up to my mistake. I offered up three reasons why Netflix would close higher this week on Monday. I went out on a limb, and Netflix chopped it down.

My three-point thesis for a bounce was simple:

  • New streaming deals are coming.
  • The competition isn't as ready as you think.
  • Netflix is finally cheap.

The first point is valid, though Netflix didn't ink any material streaming content deals after Monday's contract with DreamWorks Animation (NYS: DWA) . The contract doesn't even kick in until 2013.

Three news items -- the rollout of Amazon.com's (NAS: AMZN) Kindle Fire at a mass-market price point, Blockbuster parent DISH Network (NAS: DISH) possibly emerging as the top bidder for Hulu, and Microsoft's (NAS: MSFT) reported deeper push into Xbox Live online streaming -- shattered my thinking on the competition to bits.

As for my third and final argument, just because something is cheap doesn't mean that it can't get cheaper.

It also doesn't help that analysts continue to hack away at their profit targets. Wall Street figured that Netflix would earn $6.95 a share in 2012 two months ago, after the partial price hike was originally announced. Those estimates were down to $6.63 a share when the week began, but are down to $6.52 a share today.

Netflix is now down to trading at 17 times forward earnings. It's a mind-boggling value, but it won't be if Netflix guides analysts lower again when it reports its quarterly results next month.

September should have been special for Netflix. Charging customers on dual plans $7.99 a month during this month's billing cycle could have vindicated the model. Adding 43 new countries this month -- brining its streaming service to 45 countries overall -- is a beefy milestone. Unfortunately, Netflix overestimated subscriber loyalty and played the Qwikster card too soon.

October has to get better. It can't get much worse.

If you want to follow this saga, track the latest news by addingNetflixto My Watchlist.

At the time this article was published The Motley Fool owns shares of Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Netflix, and Amazon.com, as well as creating a bull call spread position in Microsoft and a bear put spread position in Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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