Netflix Stock Price Tumbles Following Defections

Netflix stock prices tumbled Tuesday, and when we say tumbled, we mean tumbled. Shares in the on-demand media giant plunged 35 percent after the departure of 800,000 subscribers, an exodus that the company admits it is to blame for.

The loss of so many customers in a single quarter came about after some hefty price increases, and also the company’s questionable plans to divide mail-in movie rentals and online streaming into separate services.

Netflix’s choice to hike prices by as much as 60 percent in July and split up its streaming and DVD rental services triggered a tsunami of complaints from riled customers. And there may be more badness to come: Netflix CEO Reed Hastings expects more customers to jump ship over the coming months.

So what was the exact damage? Well, Netflix shares fell a whopping $41.47 to close on Tuesday at $77.37. Just four months ago, the stock was worth more than $300. It has been, by any standard, a startling fall.

Analysts immediately reacted, with Citi Investment Research downgrading Netflix stock from ‘Buy’ to ‘Neutral.’ CIR analyst Mark Mahaney cut his target price on the stock from $220 to $95. He also added that the price increase and plans to divide Netflix’s DVD business were “major execution errors,” which is possibly politer language than Netflix shareholders are using this morning.

The strange part of this story is that Netflix Inc. did report better-than-expected financial results for the third quarter of 2011, but the good news was overcome by the mass departure of customers.

Netflix has said it does not comment on stock movement or analyst reports. I don’t blame them in this case.