Netflix (NASDAQ:NFLX) recently released very good results and the stock went up over 40% in a single day. This article tries to explain how smart hedge fund managers and other institutional investors are trying to convince the individual investor to keep buying this company all the way up to $288, its all-time high.
Carl Icahn is already the seventh largest Netflix shareholder
One thing you must understand about billionaires like Carl Icahn is they use financial derivatives to make money. Regular people just buy shares at $144 and hope to sell at $288 in the future and retire to Lake Como.
Sophisticated investors use options. If you check the major holders here then you will see Carl Icahn only has 2.25% of Netflix. This is not an accurate figure of Carl Icahn's holdings. The real figure is at least 4.50% because the options are always as big as the shares. However, most billionaires prefer to invest a far larger amount of their money in options.
Maybe in the future Yahoo will be smarter and they will display all the financial derivatives from every major holder so we can see the big picture. If you think the SEC should write a new law to force every major holder to disclose all their financial derivatives then write them a letter. (I mean an old fashioned letter) Your emails go straight to the spam folder.
(I suggest a poor man's version that anybody can understand and only one page long. In color and with simple graphs too. This should be automatically emailed to all shareholders unless you opt out. Seeking Alpha should offer this service to small investors and charge them $0.10 per Schedule 13D perhaps.)
The current Schedule 13D has been just too complex and long for anybody without a college degree. Icahn anow holds 9.9% of Netflix according to Forbes magazine. Keep in mind the options expire on 09/04/2014. Mark this on your calendar. Icahn will dump most of his shares before this date. Also, at some point in the future he may decide to buy more options.
Keep in mind, Icahn wants the price of his shares to go up. Do not pay attention to anything positive he says to the press about Netflix like -We still own every share we bought and we believe it's still got tremendous potential- according to the Financial Post or -shares were undervalued due to the company's dominant market position and international growth prospects- according to YCharts.
That is like Russell Crowe telling to TMZ -The man in the Iron Fist may be the greatest film ever made- Billionaires should not talk to the press about their current holdings. You can invest in a company or you can talk about a company. You cannot do the two things at the same time. This article may or may not be read by just a few hundreds of thousands of readers. I cannot influence the price of Netflix one way or the other. Billionaires can.
Here is a very interesting declaration from hedge fund manager Whitney Tilson according to the Wall Street Journal:
It's a very bullish, leveraged bet, in which he wanted to maximize his reported stake while minimizing the capital at risk, but he didn't go too crazy by buying and selling short-dated options - he gave himself some time so that he can win in two ways: either the business gets sold, or he has two years for the performance of the business to drive the stock higher.
He says jump. We say how high
Check the volume. Keep in mind the average is 4,491,910
In my humble opinion he is not going to wait until 2014 to take his profits. Why would he? He is worth over $14 billion according to Forbes magazine. He can buy 50% of Netflix without even breaking a sweat. If he believes in CEO Reed Hastings like I do, then why does he fight him?
Do not mess with Reed Hastings. He sits next to Mark Zuckerberg on the Facebook (NASDAQ:FB) board and he plays golf with the entire Microsoft (NASDAQ:MSFT) board including William Henry Gates III. He can borrow a few billion and sell short his own company just to force Carl Icahn to sell his 10% stake at a loss.
Sell short Netflix. Carl Icahn is smart and one of the richest man in the world, but he is going to lose on this one. Unless of course, he is only pretending to be long on Netflix and actually selling short the entire company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.