Icahn Eyes Netflix Sale as He Takes 10 Percent Stake

Activist investor Carl Icahn has taken a 10 percent stake in over-the-top (OTT) leader Netflix, sending stocks for a ride as investors struggled to uncover what it all means. Some signs are pointing to a sale for the market-leading online streaming company, but is Netflix really worth the price?

Netflix, lately finding itself battered by Wall Street in the wake of revised subscription guidance for the fourth quarter, saw a strong 14 percent increase in share price — almost touching $80 — after the announcement on Wednesday, before falling back down 1.6 percent on Thursday to close trading at $77.94.

Icahn is noted for shaking up management and setting agendas via his board seats in order to force struggling companies to make big changes, including Blockbuster and Time Warner (News - Alert). And Netflix, which spent a few quarters reeling from last fall’s ill-thought-out decision to separate its subscription and DVD rental business and increase its rate plan by 60 percent, is widely seen as in need of strategic changes.

Netflix appears to be open to suggestion…to a point. "We have many shareholders, now including Mr. Icahn, and we're always open to their perspective on how to build on our success," Netflix said in a statement that can best be described as diplomatic.

And one of those “perspectives” could be a sale. Icahn told Reuters on Wednesday that he felt Netflix was undervalued and would make "a great acquisition for a number of companies,” and that there would be a bidding war if it were ever up for sale.

Netflix in fact has a current market value of $4.4 billion, which Wedbush Securities analyst Michael Pachter said that he considers entirely overpriced given the company’s large business model challenges. Aside from the rate plan snafu, which cost the company in churn before making up ground this year, the streamer is facing escalating content fees and a so-far profitless international expansion, making for squeezed margins and what some say is an overvalued profile.

"I think [Icahn] is completely uninformed about this business and I think he is completely wrong about the variety of strategic buyers for this business," Pachter told USA Today.

Nonetheless, Icahn told the Associated Press that CEO Reed Hastings has built an attractive, pioneering business that would be an attractive acquisition target. “He is a very imaginative guy," Icahn said. "He has done a lot of good stuff."

Netflix has long been rumored as a candidate for buyout by a number of companies, most recently Microsoft, from whom Hastings recently resigned as a board member.