Why Netflix Shares Dropped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of online movie giant Netflix (NAS: NFLX) were getting two thumbs down from investors today, as they fell as much as 11% in intraday trading.
So what: Terrible is the burn of bloodthirsty competition! Today, Amazon.com (NAS: AMZN) , which has been building a competitive streaming-movie service for its Amazon Prime customers, announced a new deal with studio partnership Epix that brings in movies such as Iron Man 2, True Grit, and Warrior (it also adds Expendables, but I consider that a value detraction). Investors sold off Netflix shares as they viewed this as a move that may persuade some Netflix subscribers to opt for Amazon's service. The pessimism did, however, cool through the day, and shares closed with a loss closer to 6%.
Now what: Anecdotally, I logged on to Amazon this morning and read the letter on the front page. As a Prime subscriber, my first thought was, "Wow, what do I need Netflix for now?" As I noted, this is exactly the kind of reaction that Netflix investors are concerned about. Of course, in my case my next thought was "Oh, right, Arrested Development." The return of that cult-hit TV show as a Netflix exclusive is one big win the company has in its corner. With competition heating up, it may be creative moves like that that will allow Netflix to hang on to its customers.
That said, this is a big deal for Amazon's Prime, and there's good reason for Netflix investors to be concerned today.
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