Carl Icahn has cashed out of Netflix (NASDAQ:NFLX), and it could be awfully tempting to follow suit. The share value hit an all-time high after the company announced a 7-for-1 stock split last Tuesday, and given the stock's lofty valuation it's easy to see this as a profit-taking opportunity.
Icahn was smart enough to get in near the bottom. He snapped up a 9.4% stake in the leading premium video streaming service nearly three years ago, just in time to own the S&P 500's biggest gainer of 2013. He's walking away with a roughly $2 billion profit on the trade, announcing on Wednesday that he was cashing out of Netflix completely.
The stock has been one of Wall Street's biggest winners since his initial investment in late 2012, so it's easy to show Icahn the respect that he deserves. You can forgive him for buying into doomed one-time Netflix rival Blockbuster a few years before that, a call Icahn would later say was the worst investment he ever made. He eventually got it right, and that's ultimately all that matters.
However, we can't just ignore that he also sold more than half of his Netflix shares too soon. Icahn trimmed his stake in Netflix from 9.4% to 4.5% in late 2013, unloading most of the stock in October of that year at $341.44 a share. That's not too shabby when one considers that Icahn's cost basis a year earlier was in the double digits, but then you pull up a current stock quote and realize the stock has nearly doubled since he chopped his stake by more than half less than two years ago.
He didn't get Blockbuster right. He didn't get the initial Netflix sale right. Why should the third time be the charm?
Analysts can't seem to agree. In fact, Wall Street pros have been particularly divided on the stock since Netflix shares hit fresh highs the day after the stock split announcement.
Citigroup and Societe Generale downgraded the stock on Thursday, but MKM Partners on Friday raised its target price on the shares to a pre-split $885. FBR & Co. issued a bullish report, noting Netflix could have a larger daily audience than each of the broadcast networks within a year if usage of the streaming platform continues at its current pace.
It's perfectly fine when analysts disagree. It can even be interpreted as a bullish sign since so many classic growth stocks climb the proverbial wall of worry. Netflix shares aren't cheap, but the same argument has applied all the way up through Icahn's ownership tenure. There's no reason to believe that same path higher won't continue just because Icahn sold, again.
With the company on track to have nearly 65 million streaming subscribers worldwide by the end of this month, it's OK if you don't want to bet on Netflix -- just don't bet against it.