Netflix's outlook sends shares down 25 percent

A number of analysts hit Netflix stock with a downgrade a day after the video rental potentate warned of a possible loss later in the year.

Put Netflix's comeback on hold once again.

Shares of the Web's top video rental service spun downward as much as 25 percent in afternoon trading, tumbling to $60. Netflix shares closed trading on Tuesday at $80.

The sell-off comes a day after Netflix reported second-quarter earnings that were on the high side of the company's guidance, though profits are down 91 percent from the same period last year. That wasn't unexpected. What alarmed many investors was the company's forecast for the rest of the year.

Netflix honchos said the company may not add the 7 million new domestic subscribers that it expected and also that it could dip into the red ink as the result of its international expansion.

"We will launch our next international market (in the fourth quarter), which will drive us temporarily back into the red," wrote CEO Reed Hastings and CFO David Wells.

Netflix was once one of the fastest-growing tech companies, but Hastings raised prices last summer and alienated a large number of customers. Months later he attempted to spin off DVD operations into a separate company, and that move was also heavily criticized before it was abandoned.

Since then, Netflix hasn't come close to recovering the ability to add customers in the way it did before last summer.

During last summer's meltdown, Netflix showed it didn't always know how to take the right approach when communicating with the public. The company appeared to stick a foot in its mouth again yesterday when it intimated that it could work with HBO or the company's Internet arm, HBO Go, in the future. HBO immediately responded to Netflix comments by noting there have been no discussions about any partnership nor are there any plans to talk.

Maybe Netflix was trying to send a message -- you know, extend an olive branch to a company that has in the past sparred with Netflix in the press. Or maybe managers were trying to link Netflix to a popular content provider. Doesn't matter, because Netflix enabled one of its chief rivals to show it up in public.

Next time one of Netflix execs wants to talk possible deals with HBO, he or she should pick up a phone and call the company.

Update, 12:25 p.m. PT: To include updated stock price.

Must read: " Netflix's lost year: The inside story of the price hike train wreck "
 

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