Netflix has great value—just ask any New Yorker who rode out the long approach of Hurricane Sandy by streaming, say, all six seasons of The Larry Sanders Show until the power was cut.
Investors have a slightly different opinion. Netflix’s stock has lost about three-quarters of its value since reaching an all-time high in July 2011, thanks to a pricing fiasco, slowing subscriber growth, and the rise of rival services.
Shares shot up 14 percent on Oct. 31, though, on the news that serial takeover investor Carl Icahn had bought up a 10 percent stake in the company, as revealed in a filing with the Securities and Exchange Commission. Icahn has a long history of building large positions in distressed companies, with the goal of forcing changes on management or outright takeover.
Icahn indicated that he wants to see Netflix merge with or be sold to any number of suitors, such as Amazon, Verizon, or Microsoft. “This could be a great jumping-off point for them,” he said in an interview on Bloomberg Television. “There’s so many possible combinations.” Netflix has the industry’s best software for delivering its movies and TV shows onto game consoles, set-top boxes, laptops, and mobile devices. And it has 25 million U.S. subscribers, far ahead of rivals including Hulu, which claims 2 million paying viewers. The company’s content library is beginning to show signs of strain, though—exclusive deals are turning nonexclusive, giving such rivals as Amazon an opportunity to steal away subscribers with lower monthly prices.
Americans’ spending on subscription streaming video has risen 263 percent so far this year, according to research from Bloomberg published on Thursday, outpacing a gain of 68 percent for all digital video.
Netflix has spent heavily on original content, including a new Kevin Spacey drama, House of Cards, in hopes of reinventing itself as the HBO of the Internet. Most of those programs won’t debut until 2013.
Oppenheimer analyst Jason Helfstein downgraded his rating on the stock to neutral on Wednesday. Only 17 percent of analysts tracked by Bloomberg rate the stock a buy.