logo
  Join        Login             Stock Quote

Netflix, Inc. (NFLX) Poisons Ichan's 10% Pill

 November 05, 2012 01:08 PM
 


(By Rich Bieglmeier) Netflix, Inc. (NFLX) experienced nearly $200 million of accumulation during last week's Sandy shortened trading. That's more 4.6% of the company's market cap, and unusual for a company of NFLX's size. Usually, iStock's weekly cash in/out report identifies small-to-mid sized equities with big news.

So, when we see a brand-name stock leap to the top of the leader-board, it's always interesting. The online entertainment company has been playing extreme yo-yo with shareholders of late.

On October 23rd, NFLX management disappointed Wall Street by guiding sales and earnings lower. As you can image, the revision was greeted rudely as Netflix shares tumbled downhill from $68.22 to $60.12 from close-to-close.

[Related -Level Watching and Swing Trade Planning for Amazon (AMZN)]

Then a Knight named Icahn rode in one his horse named Franklin and news broke that the famous investor bought 10% of Netflix. Since entering the scene, the NASDAQ 100 member snapped the price string back, climbing from $61.51 to more than $76 as we type.

Ichan told Bloomberg TV there is an obvious, secular change in the way people consume entertainment. Anecdotally, the famed investor says he is a movie buff, but not even he goes to the theater as frequently. In the past, Netflix was limited with by the quality of online viewing. That's changed before our eyes, he says with Smart TVs and the iPad.

Ichan believes it is "almost obvious" that Netflix should be consolidated with the likes of Google (GOOG), Amazon (AMZN), and Verizon (VZ) making a ton of sense as potential suitors. Critics keep pointing to NFLX competitors like redbox and Amazon entering into the space; however, Netflix's $2.5 billion in cash flow, from North America alone, allows NFLX to produce shows that the likes of Google or Microsoft (MSFT) may not be interested in developing. Meanwhile, HBO and Showtime are roped in by their cable contracts. It's this flexibility that separates NFLX from the others according to Ichan.

[Related -Boost Your Dividend Yield]

This morning, Netflix adopted a "poison pill" to separate itself from Ichan, or at least prevent him from taking a larger position. The company adopted a shareholder's rights plan "intended to protect Netflix and its stockholders from efforts to obtain control of Netflix that the Board of Directors determines are not in the best interests of Netflix and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Netflix. "

iStock agrees that Netflix's subscription model and changing viewer habits do favor the company. We also agree with Ichan that a secular change is obvious. If a GOOG or MSFT decides to take-out NFLX, we think there is room for a premium to be paid. With a market cap of $4.28B and annual sales of $3.54B, 1.5 times sales would give the company a market cap of $5.31 billion, or a 24% premium over today's price. 

The fragmenting of viewership habits, from TVs to tablets and smartphones, should help grow subscribers for Netflix longer-term, especially if they create compelling, original content like Dexter or Boardwalk Empire. Content is to iPads and iPhones what razor blades are to razors, delivery is important, but content is king.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageArcelorMittal SA (ADR)(MT): Steel Stocks about to Get Red Hot

For the second consecutive day, a major broker upgraded a steel company by advancing their recommendation read on...

article imageExpress, Inc. (EXPR) Q2 Earnings Preview: Out of Style

Express, Inc. (NYSE:EXPR) will conduct a conference call to discuss its second quarter fiscal 2014 results read on...

article imageSmith & Wesson Holding Corp. (SWHC) Q1 Earnings Preview: Above Target

Smith & Wesson Holding Corp. (NASDAQ:SWHC) plans to release its first quarter fiscal 2015 financial results read on...

article imageUnited States Steel Corporation (NYSE:X): Turning $50 Says Credit Suisse

United States Steel Corporation (NYSE:X) is rolling today; up nearly 2.5% thanks mostly to an upgrade from read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.