Consider the Qwikster flap. Real and painful subscriber losses of a year and a half ago have been rendered irrelevant by attractive content deals and successful worldwide expansion. The stock set a new 52-week high recently on better-than-expected fourth quarter earnings.
Which brings us to shareholders. Now that years of capital-destroying share buybacks are behind it, Netflix, Inc. (NASDAQ:NFLX) is aiming its resources at building a competitive content advantage through exclusive deals that include worldwide rights. A recent agreement with The Walt Disney Company (NYSE:DIS), which goes live in 2016, serves as a good example.
“The Walt Disney Company (NYSE:DIS) deal is particularly significant because it is our first Pay 1 deal with a major studio in the U.S. and because of the strength of the Disney, Pixar, Marvel and Lucasfilm titles,” Hastings said in his first quarter letter to shareholders.
Netflix is also expanding investments in original content with the long-term goal of creating an HBO-like catalog that viewers will find irresistible, which, in turn, would leave room for price increases across a much larger customer base. Investors betting on Hastings executing this vision when the stock was stuck below $60 a share — as Carl Icahn did — are now sitting on a double.
While Netflix, Inc. (NASDAQ:NFLX) doesn’t have a grandiose purpose in the same sense as Google, which proposes to organize the world’s information, Hastings makes no bones about wanting to leave the world a better place. For more than a decade, he’s been involved in efforts to improve education in his home state of California. More recently, Hastings joined Bill and Melinda Gates and Warren Buffett in signing a pledge to donate half of his family’s wealth to charity.
The case against Netflix
If there’s a reason to keep Netflix off this list, it would be Hastings’ stubborn insistence that buybacks made sense when they didn’t. Foolish colleague Morgan Housel did the unfortunate math in a November 2011 column:
Companies have a poor track record of managing share buybacks, but this might be the most egregious example of wasting shareholder money in recent times. By selling $200 million worth of shares for 70% less than it paid for them just months ago, Netflix effectively flushed $140 million of shareholder wealth down the drain in nine months flat. That’s the equivalent of losing 1.3 million subscribers for a year.
Doesn’t get much worse than that, does it? To be fair, Hastings appears a lot more humble in earnings calls and interviews today than he did two years ago. But this is still an area worth watching.
Should you stream on?
Even though Netflix, Inc. (NASDAQ:NFLX) didn’t end up making the Best 25 list, its ability to grow and sign enviable content deals with major studios strongly suggests the company deserved the distinction of being one of our 40 or so finalists. But does the streaming sensation belong in your portfolio?
The article Is Netflix One of the Best Companies in America? originally appeared on Fool.com.
Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google, Netflix, and Walt Disney at the time of publication. He also had a long-term call options position in Netflix. Check out Tim’s web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool owns shares of Google, Amazon.com, Netflix, Walt Disney, and Nintendo. Motley Fool newsletter services have recommended buying shares of Netflix, Nintendo, Amazon.com, Walt Disney, and Google.
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