Icahn takes a stake in 'undervalued' Netflix

Forbes contributor thinks it’s not a smart move
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Billionaire investor Carl Icahn has added his two cents--OK, so maybe a little more than that, like $168.9 million--into Netflix (Nasdaq: NFLX), creating yet more intrigue about whether the company will be acquired at any time soon. Icahn has bought nearly a 10 percent share in the company soon after Netflix itself debunked rumors that Microsoft (Nasdaq: MSFT) might be interested in taking over. And those rumors started after Netflix CEO Reed Hastings announced he wouldn't seek re-election to the Microsoft board.

The Netflix stock took a wild ride up by as much as 35 percent over five trading days. Also adding to that boost was the fact that Netflix completed its Scandinavian rollout at the same time HBO was delaying its launch. All in all, mostly good tidings for a company that's taken a beating over the last year or so, even if some, such as Forbes contributor Panos Mourdoukoutas, believe the Netflix model is breathing its last gasps of profitability.

Icahn apparently thinks there is still value in renting online video because, in his 13D filing, he said he bought the shares because the stock is "undervalued" considering its "dominant market position and international growth prospects," a Forbes story said. The billionaire added he believes Netflix could offer "significant strategic value for a variety of significantly larger companies that are engaging in more direct competition with one another due to the evolution of Internet, mobile and traditional industry."

Icahn reportedly is "considering ways for [Netflix] to maximize shareholder value" but said he has "reached no conclusion."

Mourdoukoutas has reached his own conclusions, and they don't line up with Icahn's optimism.

"Netflix's business model isn't sustainable" in a highly competitive market where fast-rising rival Amazon.com (Nasdaq: AMZN) "sells something to the end customers," he wrote. "Netflix doesn't own anything. It doesn't have any production facilities, any warehouses, just a site where it sells somebody else's products--content developed by Disney, CBS and the like."

This might, he concluded, be a "highly profitable business" in the short term but "in the long run... profits attract competition and the company is at the mercy of content providers that have a number of options" including selling content directly to end customers or auctioning it to the highest bidder."

In total, Mourdoukoutas made it clear he thinks Icahn made a mistake with his move, concluding, "I do believe he is wrong on Netflix, the company has no sustainable competitive advantage."

For more:
- Forbes has this story
- Forbes has this analysis
- Bloomberg has this story

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