Netflix Opens Pandora's Box
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Upon taking to Facebook to disclose a significant company milestone, Netflix (NASDAQ: NFLX) chief executive Reed Hastings has awakened regulators and roped in potential civil charges in the meantime. While it may not have been Reed's intention to disclose information to a select demographic, he took his hands off the compliance wheel and upset regulators.
On July 3, Hastings posted a status update on Facebook revealing that the company had crossed a milestone when 1 billion hours of programming were viewed in June. He offered this information on his personal Facebook page to nearly 250,000 friends and fans.
The U.S. Securities and Exchange Commission was not happy about it, saying that in disclosing this information to a select group of people and investors, Reed was violation Regulation F-D, which requires that fair disclosure to the widest possible audience be used for material information.
Reed contends that the information he provided was not material, despite the fact that the stock soared some 20% to $81 per share following the infamous Facebook status update. His response, which incidentally Reed provided via a Facebook status update:
"...while our stock rose the day of my public post, the increase started well before my mid-morning post was out, likely driven by the positive Citigroup research report the evening before."
Netflix is also embroiled in a separate war with shareholder activist Carl Icahn, who has been attempting to obtain a 10% stake in the company but who has been blocked by Netflix's subsequent poison pill effort.
Despite its recent challenges, Netflix scored a win in a recent partnership with Disney. The pair signed a multi-year licensing agreement in which Netflix's TV subscription service will be the first to feature action and animated Walt Disney films.
Netflix is not the only company to ever stir up controversy on social media. On December 3, electric luxury car company Tesla Motors' (NASDAQ: TSLA) chief executive Elon Musk took to twitter to announce the company's financial performance:
"Am happy to report that Tesla was narrowly cash flow positive last week. Continued improvement expected through year end."
While Musk earned some positive responses from his followers, the news did little to spark a rally in the stock, which actually declined slightly in the days following the Twitter update. Among the investors decreasing their Tesla stake of late includes asset manager Blackrock, which reduced its holding in the stock from nearly 6% to less than 5% in recent months, according to The Wall Street Journal.
Not Just Fun and Games
In separate social-media related developments, game developer Zynga (NASDAQ: ZNGA) was dealt a tough hand by Facebook when an online gaming agreement between the two companies was amended. The changes position Zynga less prominently in the Facebook game-board and more evenly among other social gaming developers. Zynga, which suffered a loss of ($0.07) in its 3Q, received a recent boost amid filing for a gaming license in the state of Nevada.
Line in The Sand
While the inherent Pandora's box that has been opened belongs to Netflix at the moment, it has broader implications. Other companies will no doubt be watching to observe and learn when and where regulators decide the fairness line is drawn and ultimately crossed.
Netflix could have avoided the status-update aftermath by promptly filing an 8-K with the U.S. SEC in the days following his snafu. Hastings clings to the fact that Facebook is a public forum.
Nonetheless, it appears Hastings let his executive guard down. Hedge fund managers, for instance, hold their investment and operational cards so close to the vest so not to given even the slightest impression that they are improperly marketing their funds. While Hastings isn't an asset manager, he is a corporate executive with responsibility. He made an emotional decision and he may have to pay for it. It's a shame because the stock experienced a much-needed boost amid the update. Netflix shareholders can't even enjoy some profits without an asterisk attached to them.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Netflix and Tesla Motors. Motley Fool newsletter services recommend Netflix and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!