Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16
Will Venezuela Be Forced to Embrace the US Dollar? - 21st May 16
Danish Central Bank Stumbles with Its Currency Peg to the Euro - 21st May 16
SPX Downtrend Underway - 21st May 16
George Osborne Warns of More Affordable UK Housing Market if BrExit Happens - 21st May 16
Gold And Silver 11th Hour: Globalists 10 v People 0 - 21st May 16
David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - 21st May 16
Gold Stocks Following Bull Analogs - 20th May 16
The Gold Chart That Has Central Banks Extremely Worried - 20th May 16
Silver Miners’ Q1’ 2016 Fundamentals - 20th May 16
Stock Market Rally At the End of the Road? - 20th May 16
British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - 20th May 16
NASDAQ 100, FTSE, and British Pound - When Rare Market Data Screams, Listen  - 20th May 16
Unintended Consequences, Part 1: Easy Money = Overcapacity = Deflation - 19th May 16
The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - 19th May 16
Stock Market Final Supports Are Broken - 19th May 16
Gold - Pro-Inflation? Anti-USD? - 19th May 16
Further Stock Market Uncertainty As Indexes Gained On Friday, Will Uptrend Resume? - 19th May 16
What This U.S. Presidential Election Tells Us About Her Millennial Generation - 18th May 16
Stock Market Trendline Broken on Fed Announcement - 18th May 16
An Incredibly Simple, Rarely Used Way to Book 170% Investing Gains - 18th May 16
Statistically Significant Stock Market Death Cross? - 18th May 16
Precisely Wrong on US Dollar, Gold? - 18th May 16
What You Can Gain From One Tech CEO's $355 Million Loss - 18th May 16
The ‘Tide’ has turned… NEGATIVE For STOCKS!!! - 18th May 16
Goldman Sachs's - Regulatory Climate is Chilling Deals; Hatzius Not Worried About a Recession - 18th May 16
Bitcoin Price Remains above $450 - 18th May 16
Crude Oil Price Trend Forecast 2016 Implications for Stock Market - 17 May 16
Could the National Debt Really Grow as High as $31 Trillion by 2023? - 17 May 16
Gold Price Possible $200 Rally - 17 May 16
Crisis Investing - Jim Rogers on “Buying Panic” - 17 May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Netflix: When It Rains, It Pours

Companies / Corporate Earnings Nov 25, 2011 - 02:28 PM GMT

By: EconMatters

Companies

Best Financial Markets Analysis ArticleTalk about bad things leading up to other bad things.  Netflix stocks plunged yet another 8% to $68.50 on Nov. 23, two days after the company announced concurrent common equity and convertible notes financings totaling $400 million.

The company said it raised $200 million through the sale of about 2.86 million shares of common stock at a public offering price of $70 per share, for gross proceeds of $200 million, and raised $200 million through the private placement of convertible notes to funds affiliated with TCV, a private equity firm.


Netflix had $159.2 million in cash and cash equivalents, and $206.57 million in short-term investment at the end of September.  But the sum of these two could only cover 40% of its current liability of $968 million as of Q3 2011.  Moreover, the company's Current Ratio (current asset divided by current liability) stood at a scant 1.2, barely above the minimum threshold of 1.  So it is evident that this latest endeavor is to repair its balance sheet and cash flow.

Business 101--Buy Low, Sell High.  When it comes to share buyback and issuance, companies like Exxon Mobil typically do them within its stock price historical range.  Netflix was a $50-range stock before it exploded in 2010.  However, as the chart from the Bespoke Group illustrates, Netflix bought back at triple-digit per share price and had spent $302 million since 2010, while selling low with this latest stock issuance.

This suggests a sign of desperation--the last thing a company wants to do when its stock is already at only 22% of the price four months ago.  Furthermore, it also exposes Netflix management's failure to properly manage its risks and balance sheet, as this current "cashflow crunch" could have been averted had the management been more conservative during the good times.  

Chart Source: Bespoke Group, 23 Nov. 2011

As recent as 4 months ago, Netflix was an almost $300 stock, but mostly due to a series of  strategy implementation blunders by the management, its stock has been on a serious downward spiral losing about 78% of its value from $298.73 on July 13 this year.  This has definitely upset many investors, particularly for those that bought in at 3-digit price when the stock seemed unstoppable.

Now, to add insult to injury, this latest share-prices-diluting move most likely has crushed whatever sliver of support Netflix shareholders still had of the company.  Already having trouble containing a widespread subscriber revolt as it is, Netflix has now managed to also infuriate and alienate probably all shareholders.

Generally, when a company has to do something drastic, such as a $400-million cashflow repair, that might spook an already nervous market, CEOs and corporate executives (this is one reason they get paid the big bucks) need to be able to spin (or sell) it into a positive convincingly to investors and the big boys on Wall Street.  After all, the hit on share price would not have been as significant if all major shareholders have your back.  But judging from the recent Netflix stock momentum, it looks like not only had the big players sold off the shares, a good number of them are most likely shorting the stock.

On that note, we think Netflix shares could have more downside risks unless some extraordinary ground-breaking event emerges to shift the market dynamics.

Although most current shareholders probably have taken a bath on the stock, there are a few who have benefited from the Netflix drama.  For example, WSJ reported that Chief Executive Reed Hastings has been a steady seller exercising options as low as $1.50 for as much as $262 a share.  Since Mr. Hastings seems to have been able to at least manage his own portfolio risks quite nicely, there could still be hope for Netflix?

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2011 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife