Indeed, Netflix employees are taking advantage of their stock options in light of the quickly rising share price. Whereas just 188,582 options were exercised in all of 2012, employees exercised a whopping 556,819 options last quarter alone, buying that quantity of Netflix stock at an average price of just $70.30 per share. There were another 4.26 million outstanding stock options with a weighted-average exercise price of $75.09 at the end of March. This implies that the dilution of Netflix shareholders will continue.
Who holds the value of Netflix?
As of last quarter, Netflix had 56 million shares outstanding, and the conversion of the company’s convertible notes added another 2.3 million shares in April. Including Netflix’s 4.26 million outstanding stock options, the company could soon have more than 62.5 million shares of stock, up from just 53 million shares two years ago: an increase of 9.5 million shares.
Those 9.5 million recently created (or soon to be created) shares are worth more than $2 billion at Netflix’s recent trading price. By contrast, in the 10 years since it turned profitable, Netflix, Inc. (NASDAQ:NFLX) has earned a cumulative profit of just $800 million! The amount of stock being issued by Netflix is very significant in the context of the company’s historical profitability.
Ultimately, Netflix may become highly profitable, but shareholders could rightly wonder how much of the company they will still own at that point. Netflix continues to have a seemingly unquenchable thirst for capital, which could lead to even further shareholder dilution. Will the eventual payoff be worth it? Only time will tell.
The article Has Netflix Management Given Away the Store? originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg is short shares of Netflix and Amazon.com. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix.
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