Who’s the biggest winner in this week’s run-up of Netflix’s stock price?
Carl Icahn, who has more than doubled the cash he plunked down for Netflix shares last fall. The stock took one of its biggest jumps ever Thursday after the Netcaster turned a surprise quarterly profit. Despite concerns that the company may be over-extended on its content licensing agreements, the unexpected report of $8 million in net income, rather than a loss, sent Netflix shares soaring $43.60, or 42%, to close at $146.86. Shares are up 72% over the past three months.
The corporate raider “came in at about $58, ninety days ago, so he’s done very well by his investment, and he’s a very savvy investor,” Netflix CEO Reed Hastings said Thursday in an interview with CNBC. “We’ve had several constructive discussions about how to grow a bigger business for Netflix and how to make it a stronger business.”
Icahn “was on the Blockbuster board for five years so he really knows a lot about our business,” Hastings added.
The tone hasn’t always been so cordial since Icahn announced in late October that he’d acquired nearly 10% of Netflix and was “considering ways for the issuer to maximize shareholder value” — a CEO’s least favorite words from someone else’s mouth.
Netflix, just off a quarter of red ink and slow subscriber growth, quickly put up a so-called poison pill, or shareholder rights defense, that makes a hostile takeover nearly impossible. Hastings told the Wall Street Journal that Netflix could make it alone.
Icahn has muscled into dozens of companies across industries, including Lionsgate, Blockbuster and Time Warner, pressing for changes in management, board and ownership, but some Wall Streeters think Icahn’s focus may have shifted these days to oil driller Transocean and away from Netflix.
In any case, as Netflix shares rise, pressure from Icahn falls.
In addition to the profit reported Wednesday, Netflix showed upbeat revenue and subscriber numbers, international muscle, intriguing originals and a landmark Disney deal.
The response was a handful of converts among Wall Street analysts, many of whom raised ratings and price targets. Consumers are clearly willing to add Netflix on top of existing cable service, they said. And competition from rivals like Amazon and Redbox has been slower to evolve than was imagined.
“That has reinforced Netflix’s position as the de facto standard in Internet TV,” said Tim Nollen at Macquarie Capital.
Said Barton Crockett of Lazard Capital Markets: “Consumers like the service more now than before.”
The question is whether the Street has finally achieved a level of comfort with Netflix or if the stock will get buffeted every quarter it’s shy a few thousand subscribers. Hastings, on CNBC, warned the business would continue to have ups and downs. “What we want to do is just keep making the service better. And sometimes we are a little bit above or a little bit below forecasts. That’s just a forecasting issue, not a business issue.”