Why, Netflix, Why?

How much money do you need when your largest competitor is against the creditors' ropes? Or when a digitally delivered future may mean thinner moats but without the same kind of capital intensive structure?

There's never enough money, apparently, if you happen to be Netflix (Nasdaq: NFLX  ) . In a baffling move, the company is looking to initiate a secondary offering next month that will dilute investors by an additional 3.5 million shares while raising about $100 million.

Netflix doesn't need the money. It closed out a solid first quarter with a debt-free balance sheet blessed with $227.8 million in cash. And its only real rival, Blockbuster (NYSE: BBI  ) , is struggling to integrate its online and offline rental business into a cohesive yet profitable model.

The buyout rumors will get marked down, too. We heard speculation in November that Amazon.com (Nasdaq: AMZN  ) was looking to gobble up Netflix for $42 a pop, but now, if that bears fruit, the purchase price would trickle down a tiny bit, since no one would pay a premium for freshly minted shares.

With 55.2 million basic -- and 66.5 million fully diluted -- shares outstanding, another 3.5 million shares may not seem like much. It's just that the action speaks louder than the actual dilution. Some companies, like Google (Nasdaq: GOOG  ) , have been able to get away with doing this. But as much as I love it -- I even own a piece of the company -- Netflix is no Google.

Netflix shares have nearly tripled over the past year, and this move just seems like a greedy admission that, at this price point, Netflix would rather be a seller than a buyer of its own shares.

At the other end of the spectrum, share buybacks often indicate that a company believes its stock is undervalued. Unless the repurchases are being done to offset the superfluous issuance of executive stock options, the market rightfully sees it as a good sign. Printing more shares, unless the extra greenbacks would be critical to the company's existence, is just avarice.

Pointless, stupid avarice.

Netflix and Amazon.com have been winning recommendations in theMotley Fool Stock Advisornewsletter service. For more of Tom and David Gardner's picks, try out Stock Advisor free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder and subscriber since 2002. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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