No Voice for Netflix Shareholders

by Marc Bastow | November 6, 2012 8:40 am

To put it bluntly, I simply hate Netflix‘s (NASDAQ:NFLX[1]) latest move: a clear attempt to keep the investment wolves away from a shaky straw house.

Recently, corporate raider Carl Icahn snapped up a nearly 10% stake in the company[2] via direct purchases and options. In response, over the weekend, Netflix’s board of directors adopted a “poison pill”[3] provision that makes it prohibitively expensive for any activist investor — or any group that might be acting in what the Netflix board deems “are not in the best interests of Netflix and its stockholders” — to acquire more than a 10% stake in the company.

The board did this without shareholder approval … and with a pretty direct message to Icahn and anyone else who might have its sights on the company: Lay off.

Sure, the board can determine that, say, a tech giant like Microsoft (NASDAQ:MSFT[4]) or Google (NASDAQ:GOOG[5]) might have the company’s best interests at heart if they decided to make a move. But if anyone told me today they’d pay $100 per share for a $77 stock, I would jump at it — and Netflix probably would, too.

With this poison pill in place, you might not see that at any point in time.

The fact that CEO Reed Hastings and the rest of the board decided their collective performance was so good, they should shield investors from potential suitors, seems absurd when you consider these are the same guys that have watched quarter-over-quarter growth plummet from just more than 50% in June 11 to just more than 10% in September 2012.

Or that they’re the same guys who have watched net earnings flounder for the past three quarters — including a loss for the quarter ending March 2012.

Or that they’re the same guys who just watched free cash flow turn negative.

Subscriber growth is turning anemic, with just 3.4 million new U.S. streaming subscribers signing up year-to-date — that’s about half of its stated goal. Yes, the rate of subscription losses is slowing[6], but they’re still losses.

Plus, more players, including Verizon (NYSE:VZ[7]) — through its relationship with Coinstar (NASDAQ:CSTR[8]) — and Amazon (NASDAQ:AMZN[9]), are getting into the business.

The stakes just keep getting higher, and while Hastings & Co. don’t appear to have a particular plan in mind, by adopting the poison pill, they’ve also effectively taken their marbles home with them. I don’t get it — wouldn’t shareholders want the chance to at least vote on someone else with a plan?

Netflix once was one of the highest-flying stocks around. Now, its leadership has retreated into full survival mode. You call that acting in the best interest of shareholders? I sure don’t.

Marc Bastow is an Assistant Editor at As of this writing, he was long MSFT and VZ.

  1. NFLX:
  2. a nearly 10% stake in the company:
  3. adopted a “poison pill”:
  4. MSFT:
  5. GOOG:
  6. the rate of subscription losses is slowing:
  7. VZ:
  8. CSTR:
  9. AMZN:

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