Netflix's Truly Terrible Trade

History is full of bad trades, from the UBS (NYSE: UBS  ) rogue trader that lost $2.3 billion to Long-Term Capital Management's failed arbitrage plays. While Netflix's (Nasdaq: NFLX  ) badly timed repurchase program and stock offering aren't as bad, that doesn't make it sting any less for shareholders.

Netflix has been repurchasing its shares for years, but the most recent repurchase program was authorized in June 2010 for $300 million after the previous batch had been completed. With 2011 winding down, it's the time of year for people to start looking back and assessing how the year has treated them. How have Netflix's share repurchases worked out thus far?

Month

Shares Repurchased

Average Price

Approximate Transaction Total

January

None

N/A

N/A

February

211,600

$223.91

$47,379,356

March

290,247

$211.06

$61,259,532

April

216,000

$238.06

$51,420,960

May – July

None

N/A

N/A

August

84,000

$225.77

$18,964,680

September

98,000

$210.56

$20,634,880

Total

899,847

$221.88

$199,659,408

Source: 10-Q quarterly filings, actual transaction totals may differ slightly because of transaction costs.

Netflix's quarterly filings only go up through September and through the end of that month, the company has repurchased almost 900,000 shares at an average price of nearly $222 for just under $200 million. While certainly no company tries to time its repurchases with trader-esque precision, stock buybacks do convey the message that management believes the stock is undervalued to an extent.

Netflix Stock Chart

Netflix Stock Chart by YCharts

The blue line represents the dollar value of Netflix's repurchases each quarter. Since hitting an all-time intraday high in July, shares have seen a wild ride, and yesterday's closing price of $70.45 represents a jaw-dropping decline of more than 75%, while competition heats up from Amazon.com's (Nasdaq: AMZN  ) Prime Instant Video and subscribers jump ship en masse in response to the price hike and PR fumble. Coinstar (Nasdaq: CSTR  ) didn't take notes from the episode since it followed up with a price hike of its own at its Redbox DVD kiosks.

Just yesterday, Netflix has announced that it's raising $400 million in capital because ... well why not? The official response that Fool Anders Bylund got was, "We don't think we need the money, but it's nice to have more money than you need." The stock portion of the offering involves selling 2.8 million shares at $70.

Buying at $222 and selling at $70 is a pretty rough trade. While Netflix couldn't have seen its massive pullback coming, its repurchase program has seen better days. As much as I love Arrested Development, I'm relieved to be sitting on the sidelines on this one.

Fool contributor Evan Niu owns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Netflix and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2011, at 11:07 PM, chadscards1274 wrote:

    The CSTR comment merits some clarification. CSTR increased their pricing 20% from $1 to $1.20 a night but kept the Blu-ray and games pricing the same. CSTR also pointed out this is their first price increase in 8 years. CSTR is also not hounded constantly by their lack of current selections of movies. The comparison to NFLX is convenient, but these are two totally different events and not something that CSTR did because they, "didn't take notes".

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1594721, ~/Articles/ArticleHandler.aspx, 8/27/2014 5:04:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement