WHEN Netflix Inc. (NASDAQ:NFLX) CEO Reed Hastings personally responded to a short-seller’s treatise against his company in a Seeking Alpha blog post, he single-handedly upended investor relations convention.
I have been tracking the reaction to Hastings’ post on a wide variety of media and most of the reaction thus far has been positive. The company’s stock ended the day down -1.09%, but it’s worth noting that Goldman Sachs analyst Ingrid Chung this morning initiated coverage of Netflix with a Neutral rating, arguing higher bandwidth costs and competition will impact the company’s margins.
As far as reaction to Hastings’ unconventional response to short-seller Whitney Tilson goes, StreetInsider has the scoop, quoting Tilson himself saying:
I’m glad Reed Hastings took the time to reply to some of the issues we raised. He made a number of good points and helped us — and other investors — understand him and his company better. I think a friendly, respectful debate like this is healthy and wish there was more of it.”
What follows are highlights from the day’s coverage:
Julia Boorstin, CNBC Correspondent:
It’s a rare opportunity to see the CEO and a major short explain the nuances of their decision making.
Publicly defending a stock and attacking a short-seller is rare to say the least. When CEOs are asked about their stock price they tend to deliver canned publicity team-approved responses. A booming stock earns a “we’re glad the Street sees the value in our management decisions” and a bombing one gets a “we’re really managing for the long term.”
Reed Hastings broke all the rules in his blog post where he attacked short seller Whitney Tilson, telling him “to cover his short now.” (In a clever twist Reed said he’s trying to keep Tilson from losing money since they both donate to the same philanthropic causes.)
Who won in this face-off? Netflix stock is off just one percent today. I’d say the stock—and Hastings argument —must be holding up well in the eyes of investors.”
More here: http://www.cnbc.com/id/40756545
Michael Eisenberg, venture capitalist with Benchmark Capital
Reed’s post is great: upfront, direct, data-driven, passionate, empathetic and forceful. Whitney’s original explanation was well argued (though, like Reed, I disagreed with much of it). Most importantly, it was in the public eye. This is what IR Report clearly found “unusual.” In the clubby world of back room Wall Street, where information is confined to who you know and whether you can pay $2000 a month for a Bloomberg terminal, this, indeed, is unusual.
However, in a world where Wall Street meets Main Street and, as Umair Haque says in his “New Capitalist Manifesto,” where “Democracy is good for business,” I think CEOs talking publicly, in full view of the world, is great for Wall Street and should become usual. Maybe the future is now. The great collapse of the banking sector and Wall Street in the Great Recession, showed everyone the need to shine a bright light on information about public companies, where pensioners and hedge funds alike have lots of money tied up. A public airing of the merits of owning a given stock and town hall discussion of its business is what the future of Wall Street and public stock ownership should be about.
Public debate and public CEO comments make disclaimers irrelevant since everyone has the same information. It also enables public internet citizens to dissect all the data and bring critical eyes to bear on it. I wonder if the CEOs of banks were forced to defend their businesses publicly, whether the banks would have reached the crisis condition that they found themselves in in 2008.”
Nick Wingfield, Wall street Journal Digits Blog
Sometimes when CEOs take on short-sellers, it’s the start of a rancorous and potentially distracting battle for management. Hastings’ move is also noteworthy because Netflix’s shares have more than tripled over the past year, which suggests it doesn’t need to go on the attack against short-sellers. Over the past month, a nearly 14% decline in the value of Netflix’s shares have given bears some encouragement.
Hastings’ note was hardly a screed against short-sellers though, whom he praised as a “positive force for capitalism.” He sounded a cordial note towards Tilson in particular, praising him as a “great investor and wonderful human being.” Hastings wrote that he was responding to Tilson, who confessed in his original article that he has “lost a lot of money betting against Netflix,” so the investor has more money to donate to educational causes, to which Hastings also contributes.”
Erick Schonfeld, TechCrunch.com
Today, CEO Reed Hastings defended Netflix’s prospects in a very public, very detailed, and very unusual blog post on Seeking Alpha. The post was in response to a specific short seller, Whitney Tilson, who last week laid out his case against Netflix in another Seeking Alpha blog post. By addressing this one short seller, of course, Hastings is trying to address the market’s jitters as a whole, and he does a pretty convincing job of it.
Tom Petruno, markets columnist for The Los Angeles Times
Netflix Inc. CEO Reed Hastings on Monday took the unusual step of publicly rebutting arguments that his high-flying stock is headed for a dive. But compared with many battles between companies and their “short sellers” — investors who bet on falling share prices — Hastings’ tone was downright gentlemanly.
Many of the reporters and bloggers covering the news pointed out the unconventional nature of a CEO responding to a short-seller via a blog post. Eric Savitz, Forbes San Francisco bureau chief, calls the Hastings’ post “a highly unusual move.” Likewise, David Berman of Canada’s leading daily Globe and Mail news paper notes that it is “unusual, to say the least.”
Reaction, however, was not all positive. StreetInsider.com quoted controversial short seller Manuel Asensio calling it “extremely irregular and disrespectful” and saying it’s “reflective of the poor and questionable disclose [sic] which has led to the informational insensitivity of the stock.”
According to Wikipedia’s profile of Asensio, he doesn’t have much room to speak. In August 2007, Asensio Brokerage Services, Inc. was expelled by FINRA for failure to pay fines and/or costs.