Netflix loses 800,000 subscribers (stock drops 28%)

P/E ratio is one representation of how the market sees the company growing in the future. It's honestly an "emotional" number.

While Apple continues to defy the pundits, it _is_ difficult to see their profits become, say, 5x over the next ten years (since they already rake in $100B+ in revenue). Also, one could legitimately argue that Apple has real competitors in every business they are involved in (PC makers, Android, Samsung, HTC, etc), and that their markets are inherently saturated (of course, one can argue otherwise too).

Meanwhile, I suppose people see more growth potential in Amazon, because the ebook market itself is still growing, and their EC2 service is coinciding with the growth of hosted deployment of services. At the least, I can see how it's easier to trick yourself into thinking Amazon will have a stronger growth trajectory (it probably helps that Amazon's revenues are somewhat smaller at ~$30B). It also helps that Amazon has become a monopoly in their core business of online retail (with perhaps ebay being its main competitor), and application hosting seems (to me) a duopoly between EC2 and Rackspace.

I think it was the SmugMug guys who discovered that they had higher conversion rates at $12/year than $10/year, because people found it easy to think of as $1 / month. Response to pricing on virtual services can be tricky.

P/E is only one metric and it's potentially very deceptive. You're using a PE that's uncorrected for expenses that are essentially investment in future business growth rather than a fundamental part of the business model. Amazon, for example, is hiring tons of new employees to build out its AWS business; that's a positive sign (it shows they believe that's a good investment) but in the short term it will drive down their earnings, because the cost of those employees is incurred now in exchange for business in future years.

So with Amazon, you have a denominator that's growing, and a numerator that's depressed by the investment in growth. That results in a very high PE.

MSFT and Apple, by comparison, are great companies but the market isn't expecting them to grow a lot (esp given how big they already are.) They're priced at a level where the market basically expects their earnings to stay steady going forward.

30X earnings is still not cheap for a tech company. It's in a spot where you'd have to look at the growth prospects, etc. to decide if it's a good deal.

PE makes the most sense if you're comparing very mature companies with similar size, growth and operating metrics. If that's not the case, it's not very useful.

You're assuming they were cable-cutters, which is common around here but still uncommon in the wider market. More likely, they had both cable and Netflix (maybe were testing the waters) and when the price change hit, they dropped the Netflix and stuck with cable.

I thought the same after the first dip (was going to purchase at ~$150/share), but ended up convincing myself there was a stronger bear case to be made. Primarily, I considered:

1. Content producers control Netflix's ability to succeed; they could either support significant fragmentation across multiple service providers (allowing many entrants/competitors and driving up prices for their content) or distribute directly (eliminate middle men altogether)

2. Multiple competitors are or could potentially price much lower than Netflix streaming based on totally different business models; Amazon subsidizes streaming to drive sales in their core business and Google could do the same using an advertising-based model

3. Last point here is pretty subjective, but I didn't think Netflix was a likely takeover target by the majors (i.e. key competitors), especially given that Hulu is also on the block; Google already has platform, users and device-level distribution through YouTube and Amazon has much the same, in addition to already profiting from Netflix's growth (through AWS)

I had problems making a long-term case for NFLX and the blunders of leadership further eroded my confidence. I'm not sure the stock is truly worth about 1/3 of what it was a few months ago, but I'm still not buying it.