Netflix Inc's shares plunged almost 40 percent on Tuesday and were set to open at their lowest level since March last year, a day after the movie rental company warned of higher subscriber attrition and mounting costs.

On Monday, the company said it would see more cancellations as it grapples with the fallout from a price increase and other unpopular moves, including a failed attempt to split its online and DVD services into two separate companies.

We believe the NFLX model is unsustainable, as the company faces rising costs that it hoped it could pass onto its (subscribers), who appear unwilling to do so, Janney Capital Markets said in a note to clients. The brokerage cut its rating on the stock to sell.

The company that shook up Hollywood with its DVD-by-mail service has seen its shares plummet since July, when it announced a price rise for subscribers who wanted both DVDs and streaming. Since then, its market value has shrunk by about $9.76 billion.

Netflix -- which is trying to recover from the roughest patch in its nearly 15-year history as it moves to emphasize online streaming of television and movies at a time when its traditional domestic business hits a wall -- forecast a loss for the first quarter of 2012 as it spends more to expand into Europe.

Expansion into the U.K. and Ireland - a positive longer-term - comes at the same time domestic growth is slowing and content costs are building, said J.P. Morgan Securities, which expects a combination of these factors to significantly pressure 2012 profitability.

JP Morgan downgraded the stock to neutral from overweight, and slashed its price target to $67 from $205.

On Monday, the company said DVD subscriptions will decline sharply this quarter but total U.S. subscribers, which includes customers who pay for its online streaming service, will be slightly up.

Wedbush analyst Michael Pachter said in the company's cost of subscription expense -- the amount Netflix pays for its content partnerships -- outpaced its revenue growth in the third quarter and is expected to continue to be grow at a higher pace for the foreseeable future.

Separately, Citigroup, which also downgraded the stock to neutral, said the 60 percent price increase in July and the aborted effort to split its business were two major execution errors.

Netflix has long enjoyed a near-monopoly in the online streaming space but the recent entry of new players Inc and Google Inc's Youtube could potentially lead to subscribers switching to alternative services.

Shares of the company, which touched a high of $304.79 in July before falling to their current levels, closed at $118.84 on Monday on Nasdaq. They were trading at $73.70 before the bell.