This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Netflix Could Benefit From Elon Musk's Strategy at Tesla and SolarCity

Stocks in this article: NFLX TSLA STCY

NEW YORK (TheStreet) -- Netflix  (NFLX) CEO Reed Hastings may do well to mimic the capital planning policies instituted by Elon Must at Tesla (TSLA) and SolarCity (SCTY), as the company continues to invest in original programming as a means to grow users on the increasingly popular streaming video service.

Tesla and SolarCity have performed strongly after both firms conducted secondary stock offerings this year, as investors look beyond the dilution of capital raises and, instead, become more willing to invest their money behind upstarts in the respective electric car and solar energy industries.

Netflix, while a media and technology firm at heart, is in a similar position to Tesla and SolarCity.

The company is an industry innovator that is competing against firms with a bigger market presence and far larger bank accounts. Amazon (AMZN) already has a competing platform, satellite TV giants such as DirecTV (DTV) are toying with a service and speculation is mounting that Apple (AAPL) and Google (GOOG) will increase their presence in video market.

In spite of impressive growth figures, Netflix also currently operates at a razor margin that gives the firm's management little room for error. For instance, Hastings has said in interviews that he came close to destroying Netflix with a botched implementation of Qwikster, a split off of the firm's steaming and DVD subscription businesses.

It has taken a while for Netflix to recover. After the firm's better-than-expected third quarter earnings, Netflix shares now sit near record highs. 

Elon Musk, faced with such a situation, might consider raising additional equity capital as a way to fund growth investments and as a buffer against strategic missteps or competitive changes. In fact, that's exactly what he did for both Tesla and SolarCity in 2013.

Musk successfully used positive feedback on Tesla's much-hyped Model S electric sedan to raise capital multiple times this year. Those moves helped Tesla significantly add to its cash balances and allow for an acceleration of the firm's electric car production. They also allowed the company to repay Department of Energy loans well ahead of schedule, in a move that also extinguished low-priced stock warrants that could have diluted Tesla's existing shareholders.

While Tesla has significantly added to its share count in 2013 with secondary offerings, it doesn't appear that ordinary investors mind.

Tesla shares sit within reach of record highs and the firm's stock rallied on both of its 2013 capital raises. Some might take that scenario as an indication of investor complacency and a bubble-like mentality in growth stocks like Tesla.

There is another explanation.

It is possible investors saw Tesla's capital position as the No. 1 risk to the firm's share price. Were the company to post a weak quarter or fall short on execution, it wasn't hard for some to project a sinkhole in Tesla's cash that could have forced it to raise equity at unattractive prices. 

Raising capital at premium prices, however, may have minimized risks that the firm would harm investors with a more dilutive secondary offering at a later date. The same appears to hold true at SolarCity, which saw its shares surge on a recent announcement that it would raise nearly $50 million through a secondary offering.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs