'Arrested' return may be under-developed

NETFLIX stock has fallen by six per cent as investors reacted to critics' mixed reviews of the first new "Arrested Development" episodes since Fox cancelled the TV series seven years ago.

Arrested Development

NETFLIX stock has fallen by six per cent as investors reacted to critics' mixed reviews of the first new "Arrested Development" episodes since Fox cancelled the TV series seven years ago.

IDC analyst Greg Ireland characterised the sell-off as an overreaction, given that it's too early to know whether Netflix's latest high-profile foray into original programming will be a hit or a flop.

Netflix declined to disclose any information about how many of Netflix's 29.2 million US subscribers have watched "Arrested Development" since all 15 new episodes were released on Sunday.

"Arrested Development" is the third original series to debut this year on Netflix, but it has attracted far more attention because of its built-in fan base, Emmy awards and a popular cast, which includes Jason Bateman and Michael Cera and Australian Portia de Rossi.

The US-based company didn't make any of the new "Advanced Development" episodes available for advance viewing. Once they saw the resurrected "Arrested Development," some influential critics panned it as a disappointment. The New York Times was particularly harsh, asserting that Netflix had "killed" the series.

Many investors have been betting that the series will accelerate Netflix's subscriber growth and provide further validation of the company's decision to spend about $200 million annually on original programming in an effort to make its Internet video service as compelling as any broadcast or cable TV network.

Netflix credited the popularity of its original series "House of Cards" for helping its service add 2 million US subscribers during the first three months of this year, about 250,000 more than the same time last year.

The buildup to "Arrested Development" helped Netflix's stock recover from a backlash to price increases and proposed service changes announced nearly two years ago. The stock plummeted from nearly $305 in July 2011 to below $53 last August. Even with Tuesday's sharp decline, Netflix's stock has more than doubled in value so far this year.

The run-up has left investors paying about $144 for every $1 in Netflix's projected earnings this year compared with $23 for every $1 in anticipated earnings for Google, the Internet's most powerful company. Netflix's lofty valuation means the slightest stumble can cause many investors to dump their shares, Wedbush Securities analyst Michael Pachter said.

"It's a stock that is priced for perfection," he said.

As of late Tuesday afternoon, "Arrested Development" had received a 72 rating on a scale of 100, based on 10 professional reviews analyzed by Metacritic.com. That compared with a rating of 76 for the political drama "House of Cards." Metacritic considers a rating of 61 to 80 to be signifying "generally favourable reviews."

The shares shed $14.55 to close at $214.19, marking the biggest one-day drop in the stock in nearly six months.