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Netflix Earnings: Stock Buyback or Dividend?

What growth company pays a dividend?

Most don’t — especially not in Silicon Valley.

That’s just what Netflix said it is doing — sort of — by resuming its stock buyback program, which had been on a quarter-long hiatus.

“The objective our buyback program is simply to return money to our shareholders, similar to a dividend,” the company said in a letter to shareholders, in conjunction with this afternoon’s release of first quarter results.

Yet at the same time Netflix forecasted second quarter per share earnings of 93 cents to $1.15, well below analyst expectations of $1.19, as content costs take hold.

In addition, the company said that in the face of growing competition, its intention is “simply to grow as fast as we can, so we can afford more content, more marketing and more R&D than our competitors.”

All of which is fine, but the logic of spending $108.6 million to buy back shares while they’re at or near the highest levels they’ve ever been is debatable.

Some might say (as they did when I mentioned this on Fast Money) that the purchases are a mere drop in the bucket, and that all growth companies do them. But with prices these high, as Fast Money’s Karen Finerman said, purchases are unlikely to be accretive. (Unless, of course, they turn out to be the bargain of the century.)

As for growth companies buying stocks: They tend not to actively do so in the fast-growth phase. Netflix didn't start buying any until 2007, after its phase of DVD growth had been well underway.

A central piece of the bear thesis on Netflix has been how the company will be able to pay off more than $1.3 billion (and growing) of content costs currently on its books — most of which is being amortized over time.

The bulls had been suggesting the company would simply issue more shares.

Guess not!

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg

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