Herbalife Ltd. (HLF), Netflix, Inc. (NFLX): Carl Icahn’s Favorite Companies

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ICAHN CAPITAL Carl IcahnHedge fund legend Carl Icahn is reportedly part of the original inspiration for Gordon Gekko, the ruthless antagonist in the 1987 film Wall Street. Like Gekko, Icahn is known for his corporate activism, financial acuity, and great wealth. Without further ado, here are three companies that Carl Icahn really likes.

The multilevel marketer

Herbalife Ltd. (NYSE:HLF) is a multilevel marketer that sells weight loss and nutrition supplies. In December 2012, hedge fund manager Bill Ackman called the company a pyramid scheme and told the world that he was short 20 million shares. Herbalife Ltd. (NYSE:HLF) shares subsequently fell nearly 40% to a low of $24.

In the midst of the decline, Herbalife Ltd. (NYSE:HLF) longs argued that the company could not be a pyramid scheme because if it were, the FTC would have shut the 30 year old company down a long time ago. They also pointed out that Herbalife Ltd. (NYSE:HLF) made most of its profits from international divisions that were
outside FTC jurisdiction.

Sensing an opportunity, Carl Icahn took a 16.5% stake in the beleaguered company. Half a year later, Herbalife shares are trading around $66, near all time highs. Herbalife Ltd. (NYSE:HLF) fundamentals are doing just as well. In the Q2 earnings report, Herbalife announced earnings of $1.34, up 23% year over year, and that the company signed up a record 80,000 new distributors in the U.S. in the second quarter. To add salt to Ackman’s wounds, fellow hedge fund titan George Soros is rumored to have bought a significant stake in Herbalife Ltd. (NYSE:HLF) as well.

A streaming video giant

In late 2012, Carl Icahn bought 5.5 million shares, or 10%, of Netflix, Inc. (NASDAQ:NFLX) for an average price of $58 per share.

Like Herbalife, Netflix, Inc. (NASDAQ:NFLX) was under pressure from shorts for its business model. Netflix’s critics argued that the streaming video giant would not be able to handle competition from Amazon or Google, both of which had more users, better distribution, and more money on the balance sheet.

Netflix, Inc. (NASDAQ:NFLX) addressed critic’s concerns by trying to build a moat with original Netflix-only shows such as Hemlock Grove, House of Cards, and Lilyhammer. Netflix, Inc. (NASDAQ:NFLX)‘s success at building a moat showed in its subscriber count. Since 2012, despite competition from Amazon, Netflix has grown its subscriber base by 10 million to 29.8 million US subscribers and 8 million
subscribers in Q2 2013. Its stock has gone up more than 400% from the price level that Icahn bought Netflix, Inc. (NASDAQ:NFLX) shares.

Despite the rosy present, the future of Netflix is still in question. CEO Reed Hastings believes that Amazon is spending at least $1 billion in content deals a year to give Amazon Prime members unlimited streaming videos. While Amazon Prime currently has half the number of titles as Netflix, Inc. (NASDAQ:NFLX), Amazon is improving that number every day. Google YouTube may eventually challenge Netflix in the future as well. Google has more than $40 billion on the balance sheet and is rumored to be looking to strike deals with content providers. While they may not bankrupt Netflix, the two internet giants will likely sap some of Netflix’s future growth.

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