For much of 2013, Netflix has been among the most-shorted and top performing stocks in the S&P 500. The company is now an "anointed" stock as Jim Cramer has said and it is subject to constant speculation on whether the firm's shares are over-or-undervalued.
Carl Icahn has said in interviews that his instinct was to sell Netflix shares in early 2013, after the firm's quick rebound from 2012 lows. He, however, was convinced by Brett Icahn that the firm's shares remained undervalued and its market position remained bright.
Tuesday's sale by Icahn Enterprises of roughly 2.99 million Netflix shares, or just over half of the firm's investment in the company indicates that Carl Icahn, as supervisor, wanted to take some chips off of the table on Brett's winning bet.
There appears to be a healthy father-son debate at the Icahn household as to how to manage their Netflix holding.Brett Icahn is effusive about Netflix's market position and its value. He believes the firm will continue to grow scale and then will be able to significantly bolster its profitability by raising prices to $9.99 in coming years. "[We] believe the company remains significantly undervalued. As a subscription service priced at only $7.99 per month, we believe Netflix is one of the great consumer bargains of our time," Brett Icahn said in a letter disclosed on Tuesday. In particular, Brett identified an interplay between Netflix's growing scale in U.S. and international markets and its fixed content costs as the single most important piece of his investment in the company. "Netflix's predominately fixed content cost (variable primarily to the extent management chooses to further improve the service) gives the business model massive operational leverage. Our recognition of this operational leverage, combined with our expectations for both domestic and international subscriber growth with modest price increases over time, has been and continues to be the core of our investment thesis," Brett Icahn added. Icahn Enterprises, in aggregate, will continue to hold 4.5% of Netflix's outstanding shares and will be the firm's fourth largest shareholder. "In our experience, there are few companies at any given time in history that represent the pure life blood of a colossal secular growth category, and even fewer where the CEO of that company instills deserved confidence among the company's investors by repeatedly exhibiting both vision and the ability to execute on that vision. We are proud to have identified Netflix as such a company and believe that it is well positioned for greatness," the younger concluded.
In a separate part of the letter, Carl Icahn appeared to temper Brett's enthusiasm.
"While I basically agree with David [Schechter] and Brett's assessment above and have often held positions for many years, 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% in only 14 months it is time to take some of the chips off the table," Carl Icahn said. Carl Icahn also took to Twitter to thank Netflix's management team for helping to drive the firm's 2013 investment gains.
Sold block of NFLX today. Wish to thank Reed Hastings, Ted Sarandos, NFLX team, and last but not least Kevin Spacey: http://t.co/BRWpKOBfD2 ¿ Carl Icahn (@Carl_C_Icahn) October 22, 2013"I want to thank Reed Hastings, Ted Sarandos and the rest of the Netflix team for a job well done. And last but not least, I wish to thank Kevin Spacey. I also want to thank David and Brett," Carl Icahn elaborated. Netflix shares were rising over 3% to $331.06 in early Wednesday trading. Follow @AntoineGara
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