Netflix

There have been some big changes here at Netflix. Way back in July, your company’s market value was $16bn. We think shareholders may prefer our new, more manageable market cap of about $7bn. This exciting shift means new investors can buy our shares for almost 60 per cent less than they cost just a few months ago.

Some of our longer-term investors may find this transition a little bit confusing. We apologise most sincerely. Let us take some time to say what’s happened.

Of course, we don’t set our stock price. You, our investors, do that. And to those who owned the stock at its peak, thanks for believing in us when our shares were trading at 60 times this year’s earnings. That made sense if you consider only our sales growth (over 50 per cent in June, the sixth straight quarter of acceleration) and dominant market share of US online subscription viewing (nearly 90 per cent this year, according to IHS screen digest). We appreciate the way you averted your eyes as Amazon and Hulu hopped over our industry’s low barriers to entry, and our content costs rose even as revenue per subscriber fell.

Things are different now. We made two bold decisions: an abrupt and poorly presented price increase and the break-up of our brand. “Netflix” was too well known; we thought people might prefer to rent DVDs from “Qwikster”. While neither decision can explain the crash in our shares, they did focus everyone’s attention on what a hard business we’re in and how unsustainable our margins appear. Now that we have set a much lower entry point for investors, we can announce today that we’re rolling back the Qwikster idea. Please don’t worry about how our new, lower valuation (24 times earnings) still dwarfs, say, Apple’s (14 times), despite Apple’s faster growth. We hope you are as excited about Netflix’s future as we are.

- FT Lex