Time to Sell Netflix?

Shares of Netflix (NFLX) plunged 80% after video-store giant Blockbuster (BBI) entered the online business in '04. But it roared back in 2005 with sales rising 36% and profits doubling to $40 million. And NFLX is branching into film distribution, recently buying rights to 140 films in an effort to boost the market for smaller films. The company has 5 million subscribers and it hopes for 20 million by 2012.

But Hollywood is now doing more deals allowing movies to be downloaded over the Web, and many others are copying the NFLX model. Not to mention the cost of mailing DVDs, which is rising rather rapidly these days.

The question is, is NFLX chairman and CEO Reed Hastings legitimately worried, or just a bit nervous about the onslaught on his market? Is that why he recently pocketed $243,600 by selling 10,000 shares at $24.36 each.

Or maybe he thinks the Forward PE of 25.20 is somewhat optimistic? Either way, when Reed Hastings is selling NFLX stock, perhaps the rest of us should be wary.

NFLX 1-yr chart:

Editor's note: The original headline for this post included a reference to Netflix CEO Reed Hastings' 'unloading' of stock. That has been removed in recognition of the relatively low number of shares sold, and indications that these sales were part of a pre-set plan.

Comments

[Steve Wiener:]

Yaser Anwar's comments on NFLX CEO selling shares is very misleading. Reed Hastings has over 3.3 Million shares of NFLX stock. He along with CFO Mr. McCarthy have automatic preset selling of their shares on a weekly basis as per SEC guidlines. This is not unusual and in fact by doing so on a regular basis takes the suspicion out of the selling. Mr. Anwar should know this before assuming that something is up with NFLX that only Mr. Hasting is aware. Please do your homework before making such assumptions!

2006 Jul 18 04:07 PM

[Yaser Anwar:]

Steve, my bearish stance on NFLX is 'cause 1) Sells at a premium to the broader market, as measured by the S&P 500 2) Gross margins are the lowest compared to BBI, MOVI & HAST. 3) With AAPL soon coming out with iVideos for the Pods, i believe it will cut into NFLX's margins & i'd much rather be in AAPL which has 9$/share vs 3$/share of NFLX, more growth & better valuation.

2006 Jul 18 07:30 PM

[Steve Wiener:]

i don't disagree with some of your logic, but that has nothing to do with Reed Hastings selling shares on a regular basis and your initial comments questioning his sale as if he knows something we don't. For now i will hold on to my nflx shares.

2006 Jul 20 11:37 PM

[jolly singh:]

cinemanow.com and vongo.com largest threats. i bought PUT 25 when it was 27.50 few weeks ago.

2006 Jul 20 07:26 PM

[jolly singh:]

www.form4oracle.com/co...;ticker=NFLX

2006 Jul 23 01:47 AM

[metavalent:]

Yaser Anwar's hyperbole undermines the credibility of Seeking Alpha. To characterize any CEO's measly 10,000 share single transaction as "unloading" is not just misleading, it's LYING. I couldn't care less about NFLX, but the headline itself is hyperventilating hyperbole and should be retracted or edited to salvage SA's rep. Also, somebody better keep a close eye on this guy Anwar and review his work for credibility until he grows up a bit. If not for amar singh's link to form4oracle, this entire page would be a pox upon SA's otherwise good image. Even with thanks to singh, only a diligent reader will get that far and possibly salvage something of use from this otherwise embarrassing SA page. It does not matter that the quarter went on to disappoint, <i>seemingly<... vindicating anwar's empty criticism. Quarters come and quarters go, but writers can really hurt a web site's reputation.

2006 Jul 25 08:14 AM

[Yaser Anwar:]

Metavalent,

First of all i think you should get the facts straight. The original post on NFLX equityinvestmentideas....
mentioned on my blog, never said "unloading" &amp; even if it did i couldn't care less.

Second of all, i think you should stop with the act of defamation by undermining my credibility or my age, as my blog readers know i provide valuable and insightfull content.

Thirdly my age is totally irrelevant to this or other posts, as i believe i have good financial experience &amp; thus you have tried to sway the readers by pointing out fallacies to posion the well.

2006 Jul 25 03:27 PM

[metavalent:]

First. I responded to THIS post's abuse of the loaded expression, UNLOADING SHARES. The terminology is widely interpreted to indicate a complete or near complete loss of faith in a company by its executives. That's a huge unfounded implication to make on a 10,000 share transaction for a stock that regularly trades 25,338,600 shares a month. Those are the facts, my good friend.

Second. Defamation? Please. The dramatic reaction only serves to reinforce initial observations.

Third. Where did age enter the equation? Immaturity is completely independent of age. I know 60 year olds who completely lack maturity and 16 year olds who model it, impressively. Growing up is a lifelong process, we're all on that path; hopefully.

Further, the objection is to what one considers a grossly inaccurate and potentially damaging headline. Readers are free to disagree with this, but in my insignificant, biased, individual opinion it's immature journalism that reflects poorly on SA. Accusing the writer of something as absurd as 'defamation' for making the observation only further illustrates the need for adult supervision and guidance.

Finally, how is it that you consider yourself free to mischaracterize and defame the CEO of a fine company, and then find plain editorial criticism -- reckless abuse of "unloading shares" in a headline -- as a personal attack? Surely, we all want to believe that you are a perfectly wonderful person, but in this reader's opinion, that kind of headline writing falls far short of the standards for SeekingAlpha.

2006 Jul 25 06:15 PM

[metavalent:]

Characterizing one of Mr. Hastings isolated transactions as "UNLOADING" is a stark violation of the SA Terms of Use. The characterization is FALSE and even the most amateur journalist SHOULD KNOW that it is false. Unjustified use of that word is also potentially "injurious, derisive, and defamatory." I see at least two direct violations of SA's Terms of Use:

You agree not to:

* Post any comment that you either know or should know is false, deceptive or misleading, or misrepresent or deceive others as to the source, accuracy, integrity or completeness of any comment you post.
* Post any comment that is unlawful, harmful or injurious to others, threatening, abusive, offensive, harassing, derisive, defamatory, vulgar, obscene, libelous, hatefully, racially, ethnically or otherwise tortious or objectionable.

2006 Jul 25 04:43 PM