Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Stocks, Gold, Dollar, Bitcoin Markets Analysis - 23rd Sep 17
How Will We Be Affected by a Series of Rate Hikes? - 23rd Sep 17
Fed Quantitative Tightening Impact on Stocks and Gold - 22nd Sep 17
Bitcoin & Blockchain: All Hype or Part of a Financial Revolution? - 22nd Sep 17
Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms - 22nd Sep 17
Will North Korea Boost Gold Prices? Part I - 22nd Sep 17
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17
These Two Articles Debunk The Biggest Financial Nonsense I See In The Media - 18th Sep 17
Bitcoin Price Crash 40% In 3 Days Underlining Gold’s Safe Haven Credentials - 18th Sep 17
The Sum of Risks – Global, Strategic, Political, and Financial - 18th Sep 17
The Netflix Of Canada’s Cannabis Boom - 18th Sep 17
Stock Market Sentiment Speaks: Either You Learn From The Events Of The Past Week, Or You Are Hopeless - 18th Sep 17
SPX 2500 … At Last! - 18th Sep 17
Inflation Lies, Lies and OMG More Lies - 18th Sep 17
How to Choose right Forex Trader? - 18th Sep 17
Who Has Shaped the World the Most? The Dozen Greatest Achievers - 17th Sep 17
Riding the ‘Slide’: Is This What the Next Stocks Bear Market Looks Like? - 17th Sep 17
Gold Up, Markets Fatigued As War Talk Boils Over - 17th Sep 17
Predicting the Future of the U.S. and the World - 16th Sep 17
Deceit in the Financial Food Chain - 16th Sep 17
Gold GLD ETF Investment Resuming - 16th Sep 17
Extreme Weather & Energy Markets: What's Next? - Video - 15th Sep 17
Trump’s Path to IP Wars - 15th Sep 17
GBP USD Approaches Fibonacci Target - 15th Sep 17
Higher US Interest Rates May Force Higher Inflation Rates - 15th Sep 17
Stock Market Investors: Taking the Road "Less Traveled" Has Its Perks - 15th Sep 17
The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis - 15th Sep 17
The US Debt Bubble Will Soon Warrant Serious Measures - 15th Sep 17
Why it is Often Difficult to Sell a House Fast - 15th Sep 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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.


© 2005-2017 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