Netflix stock down 25% as investors lament return to red ink

Netflix’s (s NFLX) managers and investors clearly aren’t seeing eye-to-eye regarding the future of the company.
A day after the streaming video service announced its intention to venture back into red ink in order to pursue some “once in a lifetime” foreign expansion opportunities, Wall Street hammered the company — hard — dropping its stock price by  25 percent on the Nasdaq Wednesday (see Yahoo stock graphic below).
This followed a price decline of nearly 14 percent in after-hours trading Tuesday, coinciding with Netflix’s late-afternoon second-quarter earnings report.
Also read: Netflix Q2 – Hits revenue target but misses on subscribers
The stock finished the day trading at $60.28 a share — a level not seen since January 2010.
That’s bad news for a company that reported a 13 percent revenue uptick to $889.2 million, while returning to the black with a narrow profit of $6 million, or 11 cents per share.
Is this really about subscribers?
On Tuesday, Netflix CEO Reed Hastings and CFO David Wells conceded to investors that the company will be challenged to meet its stated goal of growing its streaming subscriber base by 7 million by the end of 2012.
Also read: Netflix to investors – “We’re taking our profits to Europe!’ 
It’s hard to imagine investors were surprised by this. On April 23, they dropped the stock by 16 percent in after-hours trading after Netflix announced that it had added 3 million subscribers in first quarter but would probably come up a bit light in Q2.
And come up light it did, but not unexpectedly so. The 1.1 million streaming customers added on a global basis was probably short of investor hopes, but it fell in line with Netflix’s guidance.
Beyond subscribers, Netflix’s admission that it won’t stay in the black the rest of the year as it ramps up foreign expansion into Western Europe — and as it continues to seek a beach head in Latin America — likely didn’t please investors.
With profits down 91 percent year over year, Hastings and Wells told investors Tuesday to expect red ink in the fourth quarter.
“Our model is to get back to profitability and then open a new market, get back to profitability, open a new market,” Hastings said.
Noted Wedbush Securities’ Michael Pachter, who maintained his “underperform” rating on Netflix’s stock: “We expect Netflix to operate at roughly break-even until it has completed its international land grab later this decade.”
In his own report, awkwardly titled “Aggressive international expansion plans expected to hurt 2013 profitability more than expected,” Sterne Agee analyst Arvind Bhatia added, “We are lowering our 2012/2013 revenue estimates slightly to $3.6 billion/$4.16 billion from $3.67 billion/$4.3 billion respectively. More importantly, we are reducing our 2013 [earnings per share] estimate significantly to $0.40 from $2.12 given the company’s indication it will continue to plough back any domestic profits into further international expansion.”