Investors who have been betting on Netflix in recent months may now be licking their wounds.
The streaming giant’s share price surged 50% from its May low. This is underpinned by the promise of new features to revive growth, better-than-expected quarterly results, and the runaway success of his latest sci-fi thriller, Stranger Things.
This has hit short sellers who want to borrow shares, sell them, and then buy them back at a lower price to profit from the difference. According to S3 Partners, there has been a mark-to-market loss of $996 million since mid-May.
Netflix fell 72% for the year at its May low as it faced increased competition, financially strained customers from rising inflation, a possible global recession and the pandemic’s demise of the streaming boom.
“The bearishness was extreme,” said Neil Campling, head of technology, media and telecom research at Mirabeau Securities. , and were traded at significant discounts to match their historical past.”
Indeed, stocks are still down 59% in 2022, and short-selling, which has been bearish since the beginning of 2022, is still holding a market cap gain of $2.69 billion, said managing predictive analytics at S3. Director Ihor Dusaniwsky said. partner.
The recent rally in Netflix’s stock is optimism that the launch of a long-awaited version of the ad-serving streaming service, a crackdown on password sharing and a decline in subscriber numbers in the second quarter is better than feared. reflects a point of view. The company also forecasts subscriber base growth after two quarters of contraction.
The bears who gave up betting could have added fuel to the surge. Last month, short sellers bought back about 2.4 million shares worth $599 million in him, according to S3 Partners. This meant that the total amount of shares sold short fell by 18% as Netflix rallied.
“Netflix Shorts has been aggressively adjusting its short exposure after its most recent earnings report, and we hope the worst is behind us and this quarter reflects better revenue and user growth,” Dusaniwski said. is doing.
Netflix stock is cheaper than usual even after the rally. These prices are less than 23x the projected earnings over the next 12 months and well below the 80x average for the decade. The Nasdaq 100 is 24 and the S&P 500 has a price/earnings ratio of 18.
Some companies are bracing for volatility as competitive concerns and rising costs won’t go away anytime soon.
“This stock will perform very well over the next 12 to 24 months, but will probably see a higher entry point in the fall,” said Matt Maley, chief market strategist at Miller Tabak + Company.