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Netflix announced Yesterday a $300 million Stock Repurchase Program which will enable Netflix to buy back up to $300 million of common stock leading up to 2013.
When a corporation has too much money on the books, they are a prime target for takeover. Having a great deal of liquid assets resting out in the open often proves too inviting for other large companies to pass up. Using surplus company moneys to buy back company stock shows a company is doing very well.
Buying back stock reduces cash on the books and decreases the amount of common stock on the market. Because there is less stock on the market, the value of any given common stock left increases as does the dividend amount paid out to the stock holder.
Netflix is a movie rental company which formed in 1999 just before the United States Electronic Boom. The company has been growing steadily ever since and now flaunts over 14 million users. Shipping an average of 2 million DVD’s per day, the Netflix website boasts that if these DVD were stacked into a single pile it would be taller than Mt. Everest in less than a week.
For the past ten years Netflix GAAP Net Income has risen steadily, starting at $-58.1 million in 2000 to last year’s $115.9 million. Netflix revenue for 2009 was a staggering $1,670.3 million, and the 5 Year Compound Annual Growth Rate (CAGR) is currently 20%.
One reason why Netflix is doing so well appears to be its customer service. The American Customer Satisfaction Index named Netflix the number one ecommerce company for customer satisfaction in February of this year. According to Netflix Corporate Fact Sheet, 90% of Netflix users have recommended Netflix to a friend or family member.
Netflix’s decision to buy back $300 million in stocks will strengthen its already stellar reputation, cash flow, and stock value as well as raise a customer satisfaction rate which has been nearly impeccable for the past 10 years.
