Quote from an interview with Forbes:
“Honestly, we’re looking at it as a potential long at this point,” said Tilson, when the stock was trading around $110/share two weeks ago. “We actually think that they’ve got real first mover advantages. One of their key pillars was very strong customer loyalty, which they’ve certainly tested. But now that they’ve rescinded this silly Qwikster idea, we think the company probably has a bright future.”
In December of last year, Tilson laid out his thesis on Netflix, explaining why he was short the company – despite the fact that the position had already cost him dearly – at around $180/share. “By any measure, Netflix’s valuation is extremely rich,” wrote Tilson. “The stock is priced for perfection, and any misstep would likely trigger a huge selloff.”
Tilson thought Netflix’s streaming business was a less profitable one than its DVD-by-mail operation, and predicted increased competition. “Netflix is moving from a business in which it was competing against smaller, dying, heavily-indebted companies with inferior business models to some of the largest, most powerful, aggressive and deep-pocketed companies in the world [Google, Amazon, Apple,Disney, and many more] which have big competitive advantages over Netflix,” he wrote. He also went into detail about increased headwinds from weak streaming content, increasingly expensive licensing deals, bandwidth challenges and market saturation.Read the whole thing here.
After the stock rose another 25%, Tilson took off the short, writing, “Many things will have to go very right for the company to justify its current market valuation, but we no longer think it’s wise to bet against Netflix.”
When I spoke with Tilson, he pointed out that he was right in his original assessment of the obstacles facing the company – just not at the right time.
“If you go back and read our original Netflix piece, we pretty well nailed it,” Tilson told me. “But we were quite early – we were almost a year early. So we got clobbered to the point that we couldn’t take the pain, and we just said, ‘You know what? There are better shorts out here.’ So we covered and got out.”
“Watching our investment thesis eventually play out and not participating in it has been very annoying,” he said.