Insiders Are Selling Netflix

Oct.14.13 | About: Netflix, Inc. (NFLX)

In this article, I will feature one services sector company that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Netflix (NASDAQ:NFLX) provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally.

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Insider selling during the last 30 days

Here is a table of Netflix' insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Jonathan Friedland CCO Sep 20 - Oct 1 508 Yes 0 shares + 231 options 68.7%
Leslie Kilgore Director Sep 23 - Oct 2 5,955 Yes 14,028 shares + 154 options 29.6%
Reed Hastings CEO Sep 24 15,238 Yes 1,022,215 shares 1.5%
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There have been 21,701 shares sold by insiders during the last 30 days. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

Here is a table of Netflix' insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
October 2013 3,246 0
September 2013 30,434 0
August 2013 36,235 0
July 2013 52,426 0
June 2013 15,988 0
May 2013 152,985 0
April 2013 512,814 0
March 2013 750 0
February 2013 1,604 0
January 2013 398,971 0
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There have been 1,205,453 shares sold and there have been zero shares purchased by insiders this year.

Financials

Netflix reported the second-quarter financial results on July 22 with the following highlights:

Revenue $1.1 billion
Net income $29.5 million
Cash $1.1 billion
Debt $500.0 million
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Outlook

Netflix expects Q3 net income of $18 million to $34 million.

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Competition

Netflix' competitors include Amazon.com (NASDAQ:AMZN). Here is a table comparing these two companies.

Company NFLX AMZN
Market Cap: 17.73B 142.04B
Employees: 2,045 88,400
Qtrly Rev Growth (yoy): 0.20 0.22
Revenue: 3.94B 66.85B
Gross Margin: 0.28 0.26
EBITDA: 171.88M 2.92B
Operating Margin: 0.03 0.01
Net Income: 47.73M -101.00M
EPS: 0.80 -0.23
P/E: 374.66 N/A
PEG (5 yr expected): 8.86 9.84
P/S: 4.54 2.09
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Netflix is trading at a higher P/S ratio than Amazon.com.

Here is a table of Amazon.com's insider-trading activity this year.

Month Insider selling / shares Insider buying / shares
September 2013 5,000 0
August 2013 1,056,878 0
July 2013 0 0
June 2013 2,500 0
May 2013 48,077 0
April 2013 0 0
March 2013 0 0
February 2013 242,781 0
January 2013 0 0
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There have been 1,355,236 shares sold and there have been zero shares purchased by Amazon.com's insiders this year. Only Netflix has seen intensive insider selling during the past 30 days.

Conclusion

There have been three different insiders selling Netflix and there have not been any insiders buying Netflix during the past 30 days. Two of these three insiders decreased their holdings by more than 10%.

There are seven analyst buy ratings, 22 neutral ratings, and six sell ratings with an average price target of $242.55. Netflix is trading at a P/E ratio of 374.66 and a forward P/E ratio of 89.81. The company has a book value of $18.76 per share.

Netflix has a $232 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $232 price target. I would place a stop loss at $335, which is the all-time high. The four main reasons for the proposed short entry are bearish Point and Figure chart, high P/E ratio, bearish analyst price targets, and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NFLX over 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.