On Wednesday afternoon, Carl Icahn disclosed a near 10% stake in Netflix (NFLX), whose stock price shot up from $60 to $70 on Friday and then again Wednesday afternoon to a closing price of $78 per share. The heavy short interest (near 30% of shares outstanding) likely added a turbo boost to the stock's appreciation during the past two trading days. Our fundamental analysis of Netflix does not change on this news and our fair value estimate is unchanged.
We've reviewed Icahn's interview on Bloomberg TV from Wednesday afternoon and with all due respect to him, we disagree with his assessment of Netflix and its competitive position within the video content ecosystem. In our view, Icahn is betting on another company stepping in and buying Netflix, which we can't rule out, as plenty of companies have overpaid for acquisitions in media and technology over the years. We're not factoring in a buyout premium to our fair value estimate, as we don't think the presence of Icahn as a large shareholder necessarily means a buyout is imminent, especially when various rumors and news of his ownership stake already pushed the shares from $60 to $78 during the past two days of stock market activity.