Netflix Inc. Chief Executive Officer Reed Hastings warned in July that it takes “a strong stomach” to invest in the world’s largest video-subscription company. He wasn’t kidding.
The stock has posted the widest swings of any member of Nasdaq 100 Index (CME:NDZ13) in the past month, according to data compiled by Bloomberg, evidence of a tussle over whether the video- streaming pioneer can turn its U.S. dominance of paid Internet TV into a worldwide phenomenon.
A more than tripling of the stock this year has left Netflix trading at 184 times profit, fueling debate and exposing differences that have even split families. Billionaire Carl Icahn, the largest individual holder, sold more than half his stake this month while son Brett, a fund manager at Icahn Enterprises, argued the stock is undervalued. The shares whipsawed after quarterly profit rose fourfold -- soaring after hours on Oct. 21, and slumping as much as 19% from there the next day.
“It’s hard not to like some of the things they’ve done, from massive subscriber growth, rising viewing hours, international growth and margin expansion,” said Tuna Amobi, an analyst with Standard & Poor’s in New York. “The question everyone struggles with is how long can they sustain this kind of astronomical growth?”
Netflix reached an all-time intraday high of $389.16 on Oct. 22, after third-quarter profit rose to 52 cents a share from 13 cents and subscriber growth beat estimates. Amobi, like 77-year-old Carl Icahn, used the milestone to reassess his view of the stock and cut his rating to sell from neutral that day.
The shares have since retreated 18%, trimming the gain for the year to 244% through yesterday. Netflix was little changed at $318.50 at 9:36 a.m. today in New York.
At this level, Netflix is more expensive based on measured by trailing 12-month earnings than all but four stocks in the S&P 500. Amazon.com Inc., the online retailer, has the highest P/E at 1,290 times earnings.
Netflix’s 20-day historical volatility, measuring the magnitude of price swings, more than doubled to 69.4 on Oct. 30 from Aug. 19. It’s the highest since May and almost five times that of the Nasdaq 100 equity benchmark. It’s the second-most volatile over 200 days, just behind Tesla Motors Inc., according to data compiled by Bloomberg.
The swings reflect the tug of war among investors and analysts. Supporters point to prospects for raising prices, little direct competition and signs the company’s international business may break even sooner than expected. Detractors cite a rising budget for films and TV shows, international losses and a current price that defies reason.