Jan. 24 (Bloomberg) -- Carl Icahn, who pocketed an $800 million profit after selling more than half of his stake in Netflix Inc., is losing a three-month-old wager with his son Brett over the stock, which soared to a record yesterday.
The billionaire investor, 77, sold 2.99 million shares of Los Gatos, California-based Netflix in October after the stock rose more than fivefold in 14 months. Brett Icahn, 34, and fund co-manager David Schechter disagreed with the decision, arguing the world’s largest subscription streaming service was undervalued at $323. Aside from owing his son, Icahn missed out on the ensuing 20 percent rally, which would have made him about $196 million richer had he held those shares through yesterday, according to data compiled by Bloomberg.
So far, the younger Icahn and Schechter have been right. The two revised their contract with Icahn Enterprises LP in October, tying their profit-sharing to the portfolio they manage as if it had kept all of the shares. The bet with Carl Icahn would bring them about $15 million if it ended now, according to data compiled by Bloomberg.
“That sounds about right,” Brett Icahn said by telephone yesterday. He declined further comment. Carl Icahn didn’t respond to a request for comment.
Netflix’s shares, which had the biggest gain in the Standard & Poor’s 500 Index last year, slipped 0.7 percent to $386.08 today in New York, after closing at a record $388.72 yesterday. The stock, which surged after reporting fourth- quarter results that beat analysts’ expectations, is the fourth- most expensive in the S&P 500 with a price-earnings ratio of 161, according to data compiled by Bloomberg. Chief Executive Officer Reed Hastings is testing new pricing strategies that would increase revenue and profit, and investing in growth to keep the company ahead of competitors HBO, Amazon.com Inc., the most expensive S&P 500 stock, and Hulu LLC.
“Regardless of the bull-bear debate, the stock is going to trade on the subscriber growth,” said Michael Olson, an analyst at Piper Jaffray Cos. in Minneapolis, who has the equivalent of a hold rating on Netflix shares. “Analysts can talk all they want about reasonable metrics to focus on but ultimately if the subs growth is there the stock will work its way higher.”
The bet between Icahn and his son highlights the differences of opinion about how big Netflix can grow in the face of competition, rising content costs and the risk that telephone and cable providers could force the company to pay for access to their Internet customers.
Icahn announced the sale of Netflix shares on Oct. 22, saying it was time to collect profits. Brett Icahn and Schechter argued Netflix still has significant growth potential in the same statement.
In October, the Sargon portfolio overseen by Brett Icahn and Schechter managed about $4.8 billion. Their contract calls for them to receive 7.5 percent of the gains in August 2016, including credit for the Netflix shares sold, after certain deductions.
Carl Icahn has acquired $3.6 billion in shares in Apple Inc., and is lobbying CEO Tim Cook to funnel more of its cash into large share repurchases. Icahn this month purchased an 0.82 percent stake in EBay Inc. and has proposed splitting off the company’s PayPal online payments unit. The investor said he would nominate two of his employees to join EBay’s board.
Icahn continues to hold 2.67 million Netflix shares, a 4.5 percent stake valued at $1.04 billion, according to data compiled by Bloomberg.
“As a hardened veteran of seven bear markets, I have learned that when you are lucky and/or smart enough to have made a total return of 457 percent in only 14 months it is time to take some of the chips off the table,” Icahn said after selling the stake.