Insider Purchases & Buybacks: NFLX

While a buyback is always a good sign, it is important to see whether the company has the funds for it and whether purchasing its shares is the best option the company has. Netflix (NFLX - commentary - Cramer's Take) has announced a buyback program and has the cash for it. But is it using its funds well? (On Stockpickr, you can see the rest of the insider trades and buybacks).

Netflix's board has authorized a repurchase program for up to $100 million of its common stock. The buyback plan runs through the end of this year. After a strong fourth quarter, the company has sufficient cash (almost $400 million in cash and equivalents) to carry through this plan.

The online DVD-rental company's fourth-quarter results surged past Wall Street expectations, with earnings of $15.8 million, or 24 cents a share, representing 6% year-over-year growth. Revenue rose 9% to $302.4 million in the last three months of 2007.

After having lost customers to rival Blockbuster in the earlier part of the year, Netflix did well to gain 451,000 customers in the quarter and ended the year with 7.48 million subscribers. But with Blockbuster (BBI - commentary - Cramer's Take) cutting ad spend and competitor Movie Gallery filing for bankruptcy, Netflix's subscriber additions appear a tad disappointing. I am a little concerned about churn, which rose to 4.1%, from 3.9% in the year-ago quarter. Also, the outlook was lukewarm. Following an impressive earnings performance in the fourth quarter of 2007, the company projected earnings of between $1.12 a share and $1.24 a share for 2008.

Although competition from Blockbuster appears to be easing, Amazon's (AMZN - commentary - Cramer's Take) growing offering is a threat to consider. Additionally, Apple's (AAPL - commentary - Cramer's Take) online movie-rental service launched in mid-January is likely to cause some unrest at Netflix. While Apple's initiative cannot be ignored, healthy demand for physical movie rentals is likely to persist, with less than 50% broadband penetration in the US.

---

At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.