Netflix CEO Reed Hastings has certainly not been the most popular Silicon Valley CEO in recent years, after changing prices and the structure of Netflix, which turned out to be a flop. This time, Hastings is once again in the news due to a Facebook post, which was flagged by regulators. The Securities and Exchange Commission says a post made back on July 3rd violated the rules for public disclosure. Apparently, this is the post that forced regulators to take action: “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June” (CNBC).
Due to this posting, the SEC sent Hastings a Wells Notice, which essentially means that the agency could then choose between “cease-and-desist action” or “civil injunction” for Netflix and Hastings. Hastings has repeatedly defended the post saying that there was really no sensitive material being leaked.
The ever changing world can create new roadblocks and this is one of those grey areas. How open can public companies be on social media websites? This is a question that needs to be addressed and monitored. Some companies could be trying to use social media to gain an unfair advantage or promote their stock but not all. The government needs to draw the line in the sand as far as to what companies can and can not post about on social media. This is absolutely a job for the SEC, but there needs to be a very clear message here.
With that said, I believe that social media has the capability of being the new go to place for inside information. It is imperative that the SEC continues to watch social media for any traces of insider trading or any other securities fraud.
As far as Netflix is concerned, they will most likely be forced to pay a fine and a slap on the wrist. Furthermore, once this bump in the road is cleared, the company needs to reassess itself and how it does business. Valuation wise, there is not much going in the company’s favor either. Additionally, the company has very small margins and a debt load. I am not a buyer of Netflix right now. After Hastings’s experiment backfired, Netflix just has not been the same. I suspect its glory days are now behind them.
The bottom line here is that the SEC needs to establish an official set of rules that describe what can and can not be released by public companies on social media. Additionally, it is an important area to watch for any fraudulent activities. Reed Hastings continues to have a lot of turning around to do before Netflix experiences its recovery from the CEO’s mishap.
Furthermore, the weak macro picture does not give Netflix the proper environment to stage a turnaround. I believe we have seen the high point for Netflix as an individual company and in the end, I think it could be acquired by a larger tech company such as Apple (NASDAQ: AAPL) or Google Inc (NASDAQ: GOOG).
Disclosure: None