Peter Kafka

Recent Posts by Peter Kafka

Why the Netflix Buyback Strategy Worked Like Magic — Until It Totally Failed

Netflix is raising $400 million it says it doesn’t need but would be nice to have. If only the company had thought about this back in the summer of 2010.

That’s when the streaming video company authorized a $300 million stock buyback plan. Netflix has since spent $259 million of that, all of it on shares priced well above the company’s current $75 level. Ouch.

In the first nine months of this year, Netflix spent $200 million buying back its own shares, at an average price of $222. Almost $40 million of those buys came in August and September, when Netflix shares were headed down on a very steep plunge from $300 this summer. The average price for those purchases was $217 a share.

The company’s last quarterly filing spells it out, if you like rubbing salt in wounds. Here’s the receipt for this year’s first nine months of stock buybacks (click image to enlarge):

And here’s the company’s summer spending spree:

It’s easy to ask: “What were Reed Hastings and company thinking?” And it’s easy to answer: “The same thing they’ve been thinking for years.”

Netflix has consistently been a buyer of its own shares, dating back at least to 2007. The details, via last year’s 10-K:
2007: Netflix bought $100 million worth of shares at an average price of $21.
2008: $100 million at a $26 average, followed by another $100 million at an average of $29.
2009: $175 million at $42, followed by another $149 million at $47.

Map those buys out against most of the NFLX chart for those years, and the Netflix management looks great — just like anyone else who bought NFLX in that time. But that’s the problem with crystal balls — they really tend to work best with hindsight.


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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus