Netflix stock has quadrupled since January. CEO Reed Hastings warns that momentum investors have become too euphoric. Diluting the punchbowl by issuing more equity is a better way to calm this rowdy party – and answer doubts about the online video company’s balance sheet.
Netflix and Mr. Hastings have seen similar surges in the company’s value before. The stock quintupled in 2003. But Mr. Hastings knows the market can be manic-depressive – he points out the headlines today about its stock performance are “exactly the same as in 2003.” The stock lost two-thirds its value in 2004, and saw another surge and plunge in 2011.