There's no question that Netflix has had a dizzying run—it's one of the best performing stocks of the year up 238 percent over the past 12 months.
CNBC.com
Netflix
And Netflix's CEO, Reed Hastings, believes it's worth every penny—he minced no words when he went on the record in the blogosphere, defending the company's stock price and telling a major short seller to cover his position.
A public debate over the value of Netflix's business model and its stock played out in the blogs of website Seeking Alpha—a forum selected because it's where investors dig in for context and information. 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.) To read the full blog, click here.
Tilson picked the fight and the format—he posted a blog last Thursday calling the stock "an exceptional short idea." He explains the motivation behind his blog as defending one of his worst investments—"we've lost a lot of money betting against Netflix."
But he's effectively trying to get other investors to sell—arguing "margins will be severy compressed and growth will slow over the next year." Criticizing Netflix's 67.4 times trailing EPS is nothing new, but Tilson goes far beyond that, attacking the new streaming model and the high costs it'll have to pay to stream content and pointing to the danger of new competitors. To read his full blog, click here.
Hastings pretty much goes through Tilson's argument point by point, dismissing them one by one. Some—like increased content costs—Hastings acknowledges costs will go up and that they spent 65 to 70 percent of revenue on content and postage. But he says higher content costs won't hit margins, but growth. And Hastings dismissed concerns about competition by pointing to the "evangelism" of the Netflix brand.
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.
Questions? Comments? MediaMoney@cnbc.com
