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Icahn Cashes out Big with Netflix Sell

October 23, 2013 | About:
Monica Wolfe

Monica Wolfe

133 followers


The billionaire, activist investor Carl Icahn sold off a huge chunk of his stake in Netflix (NFLX) today as the company released positive third quarter earnings yesterday. The guru made a sell of half of his stake in the online media company.

And of course our always-vocal Carl Icahn had to take to Twitter to brag about his most recent transaction. In a tweet released yesterday Icahn said: 217683149.jpg Icahn disclosed that he had taken a 10% stake in the company in Nov. 2012 when the company was trading at about $60 per share. Since last year, the stock is up over 400% and is trading at around $327 per share.

According to the GuruFocus Real Time Picks, Icahn cut his holdings -51.89% by selling a total of 2,875,509 shares at an average price of $354.99 per share. Since the announcement of his sell, shares are trading down around 9%. With this sell Icahn raked in about $800 million.

Netflix’s historical pricing:

1382556993252.png

Despite the size of his sell, Icahn still holds on to 2,665,557 shares, maintaining a 4.5% stake in the company.

Yesterday, the company released its third quarter financials which beat expectations based on its increasing content and original programming. Over the past year the company has released several original series which have done exceedingly better than expected and even earned some Emmy nods, these original series helped increase subscriber numbers.

Icahn said regarding his sell:

As a hardened veteran of seven bear markets I have learned that when you are lucky and/or smart enough to have made a total return of 457% in only 14 months it is time to take some of the chips off the table. I want to thank Reed Hastings, Ted Sarandos and the rest of the Netflix team for a job well done. And last but not least, I wish to thank Kevin Spacey.

About Netflix

Netflix is the world’s leading internet television network with over 40 million members in 41 countries, watching over a billion hours of TV shows and movies every month. The company charges its customers a monthly price and then the users can watch as much as they want, whenever they want.

Netflix’s historical revenue and net income:

1382558555178.png

The GuruFocus Analysis on Netflix reports:

· Its revenue has slowed down over the past year.

· Its price is sitting around its 10-year high.

· Its P/S ratio is near a 2-year high.

· The company’s asset growth is faster than its revenue growth.

Netflix also announced that it had purchased several new television series to place as a “Netflix Original.”

Netflix’s Possible Troubles

Currently investors are trying to figure out where Netflix is on the continuum between spending and making money. The company is required to spend money on content to continue its subscriber growth, but at the same time the cost of this, both original and licensed, content is tampering with its profit growth.

The company’s third quarter financials report this problem. The company brought in revenue of $1.1 billion, but the net income totaled only $31.8 million, or $0.52 per share, demonstrating a net profit margin of only 2.9%.

To see the entire Netflix third quarter interview, read here.

Those like Macquarie Securities analyst Tim Nollen who analyze Netflix express their confusion in valuing the company because the “upside could yet be substantial if Netflix continues to drive sub growth, but on the flip side Netflix continues to make big bets on original programming and international expansion. The P&L is highly sensitive and the stock momentum-driven, so any stumbles could send NFLX back downhill.”

This year, already, Netflix has committed to spending $5.4 billion on content, and $2.5 billion of that will have to be paid within the next year.

By spending such an immense amount of money on its content, the company is left with little to actually operate the company which is where investors are becoming worried about the sustainability of the company. Last year Netflix posted revenue of $3.6 billion, but the operating income for the company was only around $50 million.

Netflix CEO Reed Hastings’ plan to increase the financial growth of the company is to expand its international recognition. Over the past quarter, Netflix gained an additional 1.4 million international subscribers, bringing their international total to 9.2 million. Hasting reported that the company would expand overseas and that the company expects that international subscribers will ultimately account for as much as 80% of Netflix’s future revenue.

Netflix has a market cap of $19.31 billion. Its shares are currently trading at around $327.63 with a P/E ratio of 407.40, a P/S ratio of 5.00 and a P/B ratio of 17.40. The company had an annual average earnings growth of 42.10% over the past ten years.

GuruFocus rated Netflix the business predictability rank of 5-star.

Rating: 3.3/5 (4 votes)

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