Billionaire businessman Carl Icahn has taken a stake in Netflix, composed largely of call options, that could leave him holding 9.98% of the company’s shares, according to a document filed with the Securities and Exchange Commission on Oct. 31.
Netflix’s shares rose more than 15 percent that day, providing a boost to a company that has been struggling on Wall Street since last summer.
According to the filing, Icahn views the shares as undervalued, stating, “Netflix may hold significant strategic value for a variety of significantly larger companies that are engaging in more direct competition with one another due to the evolution of the Internet, mobile, and traditional industry.” Since film studios must better monetize their films online and certain tech companies need quality video content, Icahn sees Netflix as having significant value to those larger companies.
Netflix was founded in 1997 in Scotts Valley, Calif. by Marc Randolph and Reed Hastings. Some 35,000 different film titles are contained in the 1 million DVDs it sends out every day. Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5,500,000 shares of common stock at the price of $15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning $6.5 million profit on revenues of $272 million.
Last year, Hastings announced that the DVD section of Netflix would be split off and renamed Qwikster, and stated that the only major change would be separate websites for the service. The new service was to also carry video games for an additional charge, whereas the previous Netflix did not. Netflix subscribers who wanted DVDs by mail would have had to use a separate website to access Qwikster. On Oct. 10, 2011, following negative reaction from customers, Hastings announced the cancellation of the planned Qwikster service and said that the DVD-by-mail service would remain a part of Netflix. Netflix lost 800,000 subscribers last year following a steep price increase for their DVD-by-mail service.
Netflix has spent heavily on original content, including a new Kevin Spacey drama, House of Cards, in hopes of reinventing itself as the HBO of the Internet. Most of those programs won’t debut until 2013.
Icahn, a native New Yorker and the son of a cantor, has long had a stellar reputation for his philanthropic endeavors. His foundation, the Children’s Rescue Fund, built Icahn House in The Bronx, a 65-unit complex for homeless families consisting of single pregnant women and single women with children, and operates Icahn House East and Icahn House West, both of which are homeless shelters located in New York City. Icahn Stadium on Randall’s Island in New York City is named after him, as is the Carl C. Icahn Center for Science and Icahn Scholar Program at Choate Rosemary Hall, a New England prep school. This organization pays for tuition, room and board, books, and supplies for 10 students every year for four years (freshman-senior), an expense that adds up to about $160,000 per student.
As of September 2012, Icahn, 76, is worth $14.8 billion, according to Forbes.