Netflix Inc. (Nasdaq: NFLX) shares rallied 11.4% in late trading on Wednesday to close at $79.24 following news that activist investor Carl Icahn made a big move on the stock.
Icahn took a nearly 10% stake in the company through shares and long-term, over-the-counter call options mostly purchased at prices below $60.
In afternoon trading on Thursday, Netflix shares were down slightly, trading just under $79.
That means that Icahn and his partners are sitting on gains of between 30% and 44% on Netflix shares and call options purchased between Sept. 4 and Oct. 25, according to Schedule 13D filed with the U.S. Securities and Exchange Commission (SEC) yesterday.
That alone should put Icahn firmly in the genius category.
What is Carl Icahn's motivation for acquiring his stake in Netflix?
"I believe that there is going to be great consolidation between Netflix and, everybody's read about it, Amazon or Microsoft or Verizon or Google, there are so many possible combinations," Icahn told Bloomberg TV.
buy Netflix stock 2012
- Netflix (Nasdaq: NFLX): Is Carl Icahn a Madman or Genius?
- Netflix (Nasdaq: NFLX): Time to Panic or Time to Buy?
When Netflix Inc. (Nasdaq: NFLX) reported earnings Tuesday, it beat estimates for both revenue and earnings per share - but the stock still slumped 12% yesterday.
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The reason panicked investors dumped shares was because they learned that new subscribers in Netflix's domestic streaming business fell well short of management's aggressive guidance. Netflix predicted six months ago it would add 7 million streaming U.S. customers by the end of 2012, but it's now on pace to only add 5 million.
Now that NFLX stock is hovering around $60, is the market telling us that the Netflix growth story is over, and you should ditch shares like yesterday's sellers? Or are investors being handed a golden opportunity to buy Netflix at a bargain basement price?
To answer that, let's take a look at what's driving Netflix earnings.