Netflix Declares 7 for 1 Stock Split, Time to Buy or Sell?

netflix

According to billionaire investor Carl Icahn, it is time to cash out. He announced during an interview on CNBC “Fast Money Halftime” that he sold his remaining 1.4 million Netflix shares. He bought 9.4% of the company nearly three years ago, just in time to own the biggest gainer of 2013 within the S&P 500! Do you consider Icahn was smart to buy shares near the bottom or just lucky?

“Netflix was a no brainer when we first went into it.” Icahn said in a CNBC “Fast Money Halftime interview.” You couldn’t compete with Netflix because they were starting the year with like $2 billion flowing into them, and Reed Hastings did a great job in building it up.”

Icahn also said he believes Apple may be in the same position Netflix was, or maybe even in a better one. “I just don’t see how … you compete with Apple because of the great ecosystem they’ve built.”

By cashing out, Carl Icahn is walking away with an estimated profit of 2 billion dollars. However, you can’t ignore the fact that he may have sold more than half his shares too soon. Mr. Icahn reduced his stake in Netflix from 9.4% to 4.5% in October of 2013. Unloading his Netflix stock at $341.00 a share but the stock has nearly double in less than two years since then.

Keep in mind, this is the same man who bought into Netflix’s rival Blockbuster a few years earlier. Carl later admitted that it was the worst investment that he ever made. His stock price has gone down over the past year. See the one year chart below:

carl3

Netflix shares were not cheap when Carl Icahn bought them 3 years ago and are still very expensive today by most valuation methods. There is no reason to believe that the stock price won’t continue to go higher despite the fact that Icahn has sold all his shares.

Wall Street analysts are divided on the stock since it hit fresh highs the day after the stock split announcement. It is hard for some analysts to put a buy rating on a stock that has nearly doubled in price over the past year. While others argue that the company is in a strong position with over 60 million subscribers around the world. They see Netflix expanding into new markets like Japan, Italy, Spain and India within the next year.

First Call Earnings Valuation Report

– 1 day ago

Sell  2 Under Perform    2  Hold    15  Buy  12 Strong Buy       7

The stock split will come in the form of a dividend of six additional shares for each outstanding share, Netflix said. It is payable on July 14 to stock owners of record at the July 2 close. Trading at the post-split price will start July 15.

Netflix will also be reporting their second quarter earnings results on July 15. As a consumer, I am still stuck in the dark ages watching cable, so I have had a hard time buying into Netflix’s growth story. Plus I am a movie buff and I have seen 75% of the movie titles offered by Netflix and the other 25 % don’t interest me. As an investor, I am kicking myself for not buying this stock.

The stock split will make it easier for small investors to buy some shares. Apple did the same stock split back in May of 2014 and its valuation has increased from the $92.00 level to $126.00!

What do you think? Should I buy or are you selling?

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3 thoughts on “Netflix Declares 7 for 1 Stock Split, Time to Buy or Sell?

  1. This is such a tricky call being that it is right around earnings report. People tend to get spooked when big money leaves. I think Apple’s stock initially went down after the split but, as you pointed out, has increased very nicely. I still think stock splits are mostly psychological. Which I never really understood because there used to be a sharebuilder service run by ING (which got bought out) where they processed everyone’s orders on Tuesdays in bulk.. Folks could invest by dollar amount every week or month (say $100). The advantage to this was that one could buy fractions of shares of any company no matter how expensive the stock.

    On a slightly different note, what do you think about the upcoming EBAY / PayPal split. EBAY holders of record will get shares of the divested PayPal stock when it starts trading later this month.

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    • Personally, I hate buying small lots of any stock so I like stock splits. It is much easier to sell 100 shares compared to just 10 and the commission charge is the same.

      Being Canadian, sometimes U.S. stock splits may incur paying some tax so I usually wait until after the split before buying. That being said, I would prefer PayPal over EBAY. There are too many different web sites that compete with EBAY but PayPal is still the preferred method of payment for on line shopping.

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