Best of the Week
Most Popular
1.Will UK Interest Rate Rises Crash House Prices? - Nadeem_Walayat
2.Full on Crash Alert for Major World Stock Markets... - Clive_Maund
3.Gold And Silver Market Bottoming? Big Rally Imminent? Reality Check Says NO - Michael_Noonan
4.The Coming Silver Price Rally Will Outperform All Previous Ones - Hubert_Moolman
5.The Trigger For The Upcoming Stock Crash - Harry_Dent
6.Imploding Department Store Results - James_Quinn
7.Dr. Copper is Speaking, are you Listening? ... - Rambus_Chartology
8.Pandemonium in the Stock Market, Dow falls 1,000 points in a week - EWI
9.Asia's Whirling Dervish of Devaluations Has Encircled China's Exports - Keith_Hilden
10.China Weakens the Yuan; Rattles Global Stock and Financial Markets - Gary_Dorsch
Last 5 days
Stock Market Calls Fed’s Bluff - 31st Aug 15
Why Some ETFs Led the Stock Markets Down Last Week - 31st Aug 15
Stock Market Collapse - Take The Opportunity To Bail Before It’s Too Late! - 31st Aug 15
The Most Important Market Chart on The Planet - 31st Aug 15
Stock Market 50% Retracement - 31st Aug 15
Stock Market Crash Red Alert for 2nd Downwave... - 31st Aug 15
Independant Scotland 1 Year on, UK Civil War If the SNP Fanatics Had Succeeded - 30th Aug 15
Gold’s 7 Point Broadening Top - 30th Aug 15
The Day the Stock Market Shook the Earth: Takeaways From the Dow’s 1,000-Point Drop - 30th Aug 15
Gold Price Rally Marked by Short Covering - 30th Aug 15
Aging Stocks Bull Market - 29th Aug 15
Economic Destabilization, Financial Meltdown and the Rigging of the Shanghai Stock Market? - 29th Aug 15
The Stocks You Should Be Buying After the Market Drop - 29th Aug 15
How I Learned to Stop Worrying and Love Market Fluctuations - 28th Aug 15
China's Yuan Devaluation: Why It Was "Expected" - 28th Aug 15
Stocks Go Nuts But the Question Remains – Will the Rally Stick? - 28th Aug 15
Fed’s Stock Market Levitation is Failing - 28th Aug 15
The Eight Energy Systems Driving The Stock Market Rout - 28th Aug 15
Silver Sold, then Squeezed - 28th Aug 15
U.S. Economic Fundamentals 'Look Good' - Bullard of St. Louis Fed - 28th Aug 15
Stock Market Margin Calls Mount - 28th Aug 15
Einstein, Physics, Gold and The Formula To End Economic Decay - 28th Aug 15
The 10 Best Stocks for Options Trading Plays in This Market - 28th Aug 15
Economics of a Stock Market Crash - 28th Aug 15
Currency Wars Detonate; Gold Refuses to Budge - 28th Aug 15
UK Immigration Crisis Hits New Record, Trending Towards Becoming a Catastrophe - 28th Aug 15
The Ultimate Cash-Management Guide - 27th Aug 15
Why a Fed Rate Hike Could Be a Blessing for Gold Prices - 27th Aug 15
Why Devaluing the Yuan Won't Help China's Economy - 27th Aug 15
Stock Market Trend & Trade Signal Of the Decade - 27th Aug 15
Keep Your Eye On the Gold and Silver Bear - 27th Aug 15
Refugees Expose Europe’s Lack Of Decency - 27th Aug 15
How to Profit from China's Currency War - 27th Aug 15
How China's Currency Policies Will Change the World - 27th Aug 15
Chinese Medicine not Impressing Dr Copper - 27th Aug 15
Novel Biotech Novel Technology Platforms with Dramatic Growth Potential - 27th Aug 15
China Stocks Bear Market Crash, Are We Near the Bottom Yet? - 27th Aug 15
Stock Market Crash Black Wednesday Rally Crushes the Bears - 26th Aug 15
VIX Shorts Being Squeezed While SPX Prepares for Another Decline - 26th Aug 15
Why China's Economy is Deteriorating - 26th Aug 15
Citizenship as a Weapon: Travel Controls and What You Can Do About It - 26th Aug 15
Gold and Silver - How To Manipulate a Market - 26th Aug 15
How to Make a Quick 20% When the Stock Market Crashes - 26th Aug 15
Why We Can’t Handle A Stocks Bear Market - State Budgets Will Implode - 26th Aug 15
Stocks Bear Market, Is This 1929 All Over Again? - 26th Aug 15
The One Trading Strategy You Needed for Stock Market Crash - 26th Aug 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Stocks Slide

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.


© 2005-2015 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

Biggest Debt Bomb in History