Carl Icahn Slashes Stake in Netflix

Carl Icahn
Carl Icahn
 Billy Farrell/PatrickMcMullan.com/Sipa Press

Billionaire investor Carl Icahn, who had been sitting on roughly a 457 percent profit in Netflix over the course of 14 months, has cut more than half of his investment in the streaming-media company, according to a filing after the closing bell on Tuesday.

At his peak, Icahn had about a 10 percent stake in Netflix, though Tuesday he revealed the stake is at about 4.5 percent of the company.

In a press release on Tuesday, Sargon Portfolio co-managers Brett Icahn and David Schechter said Carl Icahn wished to sell shares at a significant profit to reduce exposure to the stock, but that they agreed to maintain a smaller position because they believe "the company remains significantly undervalued." Sargon manages $4.8 billion for Icahn Enterprises and for Carl Icahn personally.

Brett Icahn and Schechter argue that Netflix stock can climb higher because the company can eventually grow its U.S. streaming subscribers to as many as 90 million, while it has about 31.45 million today. 

Carl Icahn agreed with the analysis, but wrote: "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 percent in only 14 months it is time to take some of the chips off the table."

Icahn also thanked Netflix management "for a job well done," and he thanked Kevin Spacey, star and executive producer of House of Cards, a very popular original Netflix series.

Meanwhile, traders of Netflix turned an early 10 percent gain in the stock into a 9 percent loss on Tuesday, a day after CEO Reed Hastings took the unusual step of insinuating that shares of the company he co-founded were overvalued.

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At the opening bell Tuesday, the stock surged to an all-time of $389.16, no doubt because the day before Netflix reported quarterly earnings and subscriber additions that bested the predictions of analysts.

The earnings report had Netflix shares soaring during the after-hours session on Monday and the open on Tuesday, but by the closing bell shares had sunk $32.47 to $322.52.

The reversal might partially be due to cautionary comments Hastings made on Monday, first in a letter to shareholders then in a live webcast.

Hastings wrote in a letter to shareholders that trading patterns of the stock, up more than 400 percent in the past year, is reminiscent of 2003, when the stock advanced about 396 percent but most of the gain was wiped out over the next 10 months.

“In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003,” Hastings wrote Monday.

“Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we've continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock,” the CEO wrote.

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Hastings continued the theme late Monday during a live YouTube presentation where he was prompted by BTIG analyst Richard Greenfield.

“You have always said that you leave it for Wall Street to determine what happens to your stock. Why did you make the comment this time about your stock and specifically about euphoria?” Greenfield asked.

“Every time I read a story about Netflix is the highest appreciating stock in the S&P 500, it worries me, because that was the exact headline that we used to see in 2003,” Hastings answered. “We have a sense of momentum investors driving the stock price more than we might normally. There is not a lot we can do about it, but I wanted to honestly reflect upon that.”

With a 260 percent return so far in calendar 2012, Netflix is the second-best performing stock among companies with at least a $10 billion market capitalization, according to Capital IQ. In first place is Tesla Motors, which has returned 441 percent so far this year. Tesla’s market cap is about $21 billion compared with Netflix’s $19 billion.

Email: Paul.Bond@THR.com

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